Guide on climate-related and environmental risks: Supervisory expectations relating to risk management and disclosure

This guide was developed jointly by the European Central Bank (ECB) and the national competent authorities (NCAs) with the aim of providing greater transparency regarding the ECB’s understanding of the safe and prudent management of climate-related and environmental risks. Moreover, it aims to enhance the industry’s awareness of and preparedness for managing climate-related and environmental risks.

The ECB supervisory expectations are, among others (pp. 4-5):

1. Institutions are expected to understand the impact of climate-related and environmental risks on the business environment in which they operate, in the short, medium and long term, in order to be able to make informed strategic and business decisions.
2. When determining and implementing their business strategy, institutions are expected to integrate climate-related and environmental risks that materially impact their business environment in the short, medium or long term.
3. Institutions are expected to incorporate climate-related and environmental risks as drivers of established risk categories into their existing risk management framework, with a view to managing and monitoring these over a sufficiently long-term horizon, and to review their arrangements on a regular basis.
4. In their credit risk management, institutions are expected to consider climate-related and environmental risks at all stages of the credit-granting process and to monitor the risks in their portfolios.
5. Institutions are expected to consider how climate-related events could have an adverse impact on business continuity and the extent to which the nature of institutions’ activities could increase reputational and/or liability risks.