ECB Set to Include Climate Change risks in future Bank stress tests

The European Central Bank has taken steps in considering and including climate-change risks in future European banking stress tests. This was disclosed by ECB Vice President Luis De Guindos.

Speaking at a BNP Paribas banking conference in London, De Guindos mentioned the monetary policy implications of climate change would come into discussion over the next quarters.

“It is something we are paying much more attention to, especially in terms of financial stability,” he said.

Climate change is becoming a bigger issue for central banks, as demand is rising for investment to be environmentally sustainable.

According to him, he explained: “Climate change involves a lot of actors and central banks have to play a role.”

“For instance, something that we have started to consider is including climate change potential risks in the adverse scenario of the (banking sector) stress tests.”

A methodology for calculating risks related to climate change is not yet fully developed so it is unlikely to be included in next year’s European Banking Authority stress test, but it could be used in 2022.

However, the EBA stress test is an assessment of risks to the functioning and stability of financial markets across the European Union. It takes place every two years.