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Eurozone banks are making progress in addressing climate-related risks but more needs to be done, the European Central Bank’s (ECB) head of banking supervision, Claudia Buchová, said on Tuesday.
Bouchois said that almost all banks in the eurozone believe that climate and environmental risks are large and are gradually adjusting risk management tools, but there is still a lot of work to be done. She said that the ECB is ready to force banks to take action if necessary. “If they do not meet our supervisory expectations, we may take appropriate action, such as requiring better risk management or increased capital,” Bukhova added.
In 2020, the European Central Bank’s banking supervision department developed guidelines for monetary union financial institutions to address climate and environmental risks, which also set out expectations for banks. Regulators said that sources of risk include investments in high-emission companies and industries that harm the climate. This is because the market prices of these investments can change rapidly, for example due to political changes, severe climate events and changes in investor attitudes.
Banks and other companies face growing pressure from shareholders and environmental groups to move quickly to reduce the carbon footprint of their activities.
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