Supervisory assessmentof institutions’ climaterelated and environmental
risks disclosures
ECB report on banks’ progress
towards transparent disclosure of
their climate-related andenvironmental risk profiles

March 2022

Contents
Executive summary

2

1

Introduction

62Regulatory background on climate-related and environmental risk
disclosures7

2.1

Corporate disclosure standards affecting credit institutions

7

Box 1 Focus on the role of the European Financial Reporting Advisory
Group

9

2.2

10

3

4

5

Bank-specific disclosure standards

Set-up of the 2021 assessment

12

3.1

Context of the assessment

12

3.2

Scope, sample and objectives of the assessment

13

Observations on alignment with ECB expectations as regards
climate-related and environmental risks disclosures

15

4.1

15

Disclosure policies and risk profile transparency

Box 2 Verification and audit of climate-related and environmental
disclosures

18

4.2

19

Content of disclosures

Box 3 Further observations on disclosures of institutions with a parent
group headquartered outside the countries participating inEuropean banking supervision

22

Further observations on metrics, targets and commitments

24

5.1

24

Selected metrics

Box 4 Article 8 of the Taxonomy Regulation

28

5.2

29

Targets and commitments

Box 5 Achieving net zero – commitments from banks

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Contents

30

1Executive summary
As part of the supervisory work on the transparency of banks’ risk profiles, andfollowing the inclusion of climate-related and environmental risks in ECB Banking
Supervision’s supervisory priorities for 2022-24, the European Central Bank (ECB) is
publishing its second snapshot of the level of disclosure of climate-related andenvironmental risks among significant institutions. In line with the ambitious
objectives set by the European Commission for sustainable finance, regulation ofclimate-related and environmental risk disclosures is expected to become
increasingly stringent and to have a very clear impact on banks’ disclosures in the
coming years.
The stocktake published on 27 November 2020 demonstrated that virtually none of
the institutions in the scope of the assessment would meet the minimum level of
disclosures set out in the “ECB Guide on climate-related and environmental risks’’published on the same date. Following this baseline measurement, the ECB
conducted a supervisory assessment on climate-related and environmental risk
disclosures, with a view to identifying key gaps. The assessment also considers theextent to which banks’ disclosures are well-substantiated and provides a preliminary
indication of their preparedness for upcoming requirements. This report presents abird’s-eye view of its findings.
Overall, the gap analysis shows that institutions have shown clear progress invarious areas compared with last year.
Chart 1
Overview of the progress made by institutions on describing selected indicators intheir public disclosures
2019 disclosures
2020 disclosures
71%
57%

71%
55%
41%
30%

Risk management:
processes for identifying, assessing andmanaging climate-related andenvironmental risks

Governance:
Board oversight of climate-related andenvironmental risks

Business model:
Potential strategic impact of transition risks
in the short or long term

Source: Supervisory assessment based on institutions’ disclosures with a reference date of end-2019 (2019 disclosures) and end2020 or later when available (2020 disclosures).

However, most institutions still need to make significant efforts to transparently
disclose their exposures to climate-related and environmental risks and further
improve their disclosure practices. The ECB has therefore sent individual feedback

Supervisory assessment of institutions’ climate-related and environmental risks disclosures –Executive summary2

letters to the banks under its supervision setting out key gaps in their disclosures andexpects them to take decisive action to ensure they convey their risk profile
comprehensively. Addressing such gaps will also accelerate institutions’preparedness for meeting impending technical requirements.
Chart 2The state of climate-related and environmental risk disclosures in the banking sector
in terms of content and transparency(y-axis: the level of alignment of 109 institutions’ disclosures with the supervisory expectations set out in the ECB Guide ontransparency and substantiation; x-axis: the level of adequacy of 109 institutions’ disclosures as regards the expectation set out in the
ECB Guide on the content of disclosures)Transparency of materiality of risk and methodologies

Transparent

Broadlytransparent

Somewhattransparent
45% ofinstitutions
Not transparent
Inadequate

Somewhat inadequate

Broadly adequate

Adequate

Content of disclosures

For the second year in a row, the analysis showed that virtually none of the banks
disclose all the basic information on climate-related and environmental risk thatwould align with all of the ECB’s expectations. While some progress could beobserved as regards the disclosure of qualitative information, 45% of the banks’disclosures were even assessed as insufficient from both the content andsubstantiation perspectives. Against that backdrop, and to assess the extent towhich the banks have addressed individual feedback, climate-related andenvironmental risk disclosures will continue to feature prominently in the ECB’s
supervision.
With regard to the transparency of the materiality of risks and methodologies, thesupervisory review demonstrated that one-third of institutions do not yet
transparently disclose that they are materially exposed to climate-related andenvironmental risks in line with their internal materiality assessments. Overall,institutions still scarcely substantiate their climate-related and environmental metrics
and targets, for instance in terms of their commitment to align with Paris Agreement
objectives: only about one in five institutions disclose the methodologies, definitions
and criteria for all of the figures, metrics and targets reported as material.
Conversely, more than one-third of institutions do not disclose these aspects at all.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Executive summary3

Owing to the growing importance of such commitments and given the number ofbanks subscribing to net zero initiatives, such as the Glasgow Financial Alliance for
Net Zero (GFANZ) and publishing alignment metrics, it can be expected that users ofbanks’ disclosures will increasingly seek information on the methodologies,
definitions and criteria relating to these commitments and the corresponding metrics
and targets.
As regards the content of disclosures, the supervisory review concluded that theyremain sparse and heterogeneous across the board. Some banks publish dedicatedclimate-related and environmental risk reports with extensive qualitative andquantitative information, while other banks report on climate-related risks only to amarginal extent, or solely in the context of corporate sustainability, with inherent
confusion between the impact of the banks’ operations and that of the activities it
finances.
Table 1
Overview of the institutions that disclose basic climate-related and environmental risk
information that would align with ECB expectation 13 and related sub-expectations
Topic

Expectation

Disclosure practices

Percentage

Transparencyof disclosures

13

Does the institution disclose that its exposure to climate-related and environmental
risks is material?

36%

13.3

Does the institution disclose methodologies, definitions and criteria associated withany figure, metric or target reported?

21%

13.4

Does the institution describe the potential strategic impact of transition risks in the
short or long term?

41%

Does the institution describe the board’s oversight of climate-related andenvironmental risks?

71%

Does the institution describe the organisation’s processes for identifying, assessing
and managing climate-related and environmental risks?

71%

Percentage of institutions that disclose all of the information set out in Expectation
13.4

39%

13.5

Does the institution disclose its Scope 3 financed emissions?

15%

13.6

Does the institution disclose its key performance indicators or key risk indicators
associated with its strategy-setting?

49%

Content of
disclosures

Percentage of institutions that disclose all of the information set out in Expectations 13.4-13.6
Otherenvironmental
risk
disclosures

13.7

Does the institution disclose key information on environmental risks other thanclimate-related risks?

6%25%

Source: Supervisory assessment based on 109 institutions’ disclosures with a reference date of end-2020 or later when available.

In the context of the Corporate Sustainability Reporting Directive (CSRD) andupcoming Implementing Technical Standards by the European Banking Authority(EBA ITS), banks subject to these rules will have to disclose specific metrics
showing the extent to which their assets are aligned with the EU Taxonomy andspecific transition alignment metrics. The current report demonstrates that banks’current disclosures are not sufficient to meet future regulatory disclosure
requirements. For instance, while 74% of banks in the sample declare that they
disclose Scope 1, 2 and 3 greenhouse gas (GHG) emissions, 1 only 15% actually
disclose (some of their) financed emissions. Moreover, only 12% of the banks
1

In accordance with the GHG Protocol.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Executive summary

4

disclose metrics on their portfolio alignment. While the ECB encourages banks todisclose the results of such exercises, the selection of portfolios and the related
reference scenarios do not always ensure a representative view of the risks that theinstitution faces. Lastly, a quarter of the banks in the sample make a qualitativereference to the EU Taxonomy, while only 7% provide quantitative information inconnection with it.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Executive summary

5

1

Introduction
Achieving the objective of the Paris Agreement to limit temperature increase to
1.5 degrees Celsius requires a massive transition of the economy, with all sectors
affected. It means that banks, like other financial sector participants, will need toadjust their business models and develop plans to align their balance sheets withthis transition. Transparency on the risk profiles of banks and on their tangible efforts
to align their portfolios will give market participants meaningful information with whichto compare banks' risk profiles, including potential revaluations of assets in the eventof misaligned trajectories.
In its November 2020 report on institutions’ climate-related and environmental risk
disclosures 2, the ECB concluded that significant institutions did not yet
comprehensively disclose their risk profiles and that significant efforts were stillneeded to promote transparency in the financial markets on the climate-related andenvironmental risks institutions were exposed to. Virtually none of the institutions inthe scope of the assessment met the minimum level of disclosures set out in the
ECB Guide, and in the related recommendations in the European Commission’s“Guidelines on non-financial reporting: Supplement on reporting climate-related
information” and of the Task Force on Climate-related Financial Disclosures (TCFD).
This report aims to again take stock of the climate-related and environmental risk
disclosure practices of its significant institutions and to measure their progressagainst the ECB’s expectations. It provides the ECB’s main observations on thosepractices, areas for improvement and good practices. In the wake of the 26th UN
Climate Change Conference of the Parties in Glasgow (COP26) from 31 October to
13 November 2021 and given the increasing number of commitments by banks toachieve net zero emissions, particular attention is dedicated not only to the metrics
and targets disclosed by institutions, but also to the substantiation of those
disclosures.

2

See ECB report on institutions’ climate-related and environmental risk disclosures, November 2020.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Introduction

6

2

Regulatory background on climaterelated and environmental risk
disclosures

2.1

Corporate disclosure standards affecting credit
institutions
International initiatives
The work on climate-related and environmental risk disclosure is also acceleratinginternationally. In 2017 the Task Force on Climate-related Financial Disclosures(TCFD), which was established by the Financial Stability Board (FSB) to develop
recommendations for more effective climate-related disclosures, issued its Final
Report, which contained recommendations for helping businesses disclose climaterelated financial information. These recommendations that apply across all sectors
have been widely recognised as guidance on the reporting of financially material
climate-related information, and a number of financial institutions in the sample
assessed in this report already publish specific “TCFD reports”. The TCFD regularly
publishes status updates and focus reports, for instance on metrics and targets.
Furthermore, on 3 November 2021 the International Financial Reporting Standards(IFRS) Foundation Trustees announced the creation of a new standard-settingboard – the International Sustainability Standards Board (ISSB). The intention is for
the ISSB to deliver a global baseline of sustainability-related disclosure standards
that provide investors and other capital market participants with information oncompanies’ sustainability-related risks and opportunities. Its Climate-related
Disclosures Prototype, published in November 2021, already provides a sense of
direction of the future work of the Board and deals with disclosures related togovernance, strategy, risk management, and metrics and targets.
Several initiatives are being developed as regards other environmental risks. The
Taskforce on Nature-Related Financial Disclosures (TNFD) is in a preparatory phasefor the development of a framework for organisations to report and act on evolving
nature-related risks. The TNFD is focused on living nature and elements relating toliving nature, such as air, soil and water. The framework will not be a new standard
but an aggregator of the best tools and materials available to promote worldwide
consistency for nature-related reporting. The TNFD framework will also adopt a fourpillar approach, structured around how organisations operate in terms ofgovernance, strategy, risk management, and metrics and targets.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Regulatory background on climate-related and environmental
risk disclosures

7

EU framework
The regulatory framework for sustainable finance has developed at a rapid pace overthe past few years in the EU. A mandatory disclosures regime for financial and nonfinancial companies was already developed back in 2018 and constituted the second
block in the EU action plan on financing sustainable growth. In 2021 the European
Commission’s revised Strategy for Financing the Transition to a Sustainable
Economy proposed a series of ambitious actions to strengthen sustainability
disclosures standards in the EU, for example by improving science-based targetsetting, as well as disclosure and monitoring of the financial sector’s commitments.

Corporate Sustainability Reporting Directive
On 21 April 2021 the European Commission adopted a proposal for a Corporate
Sustainability Reporting Directive (CSRD) to amend the existing reporting
requirements of the Non-Financial Reporting Directive (NFRD). 3 The NFRD had
proven insufficiently reliable and comparable, and investors were still finding it
difficult to access data. Companies were also unsure which information to discloseand how to disclose it 4. The CSRD is designed to ensure that companies report therelevant, comparable and reliable sustainability information needed by investors andother stakeholders.
The CSRD builds on the topics covered in the NFRD and requires companies topublish regular reports on the environmental, social and governance (ESG) impactsof their activities. The proposal includes the following amendments andimprovements.
1.

It extends the scope of the requirements to all large companies and allcompanies listed on regulated markets (except listed micro-enterprises).

2.

It creates an audit (assurance) requirement for reported sustainability
information for the first time.

3.

It introduces more detailed reporting requirements (i.e. forward-looking
information that covers short, medium, and long-term horizons) and,
importantly, the requirement to report according to mandatory EU sustainability
reporting standards adopted by the Commission via delegated act.

4.

It requires companies to digitally “tag” the reported information, so it is machinereadable and can feed into the European single access point envisaged in thecapital markets union action plan.

The Commission, the European Parliament, and the Member States in the EU
Council, are currently negotiating a final legislative text on the basis of the proposal.
3

Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending
Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large
undertakings and groups (OJ L 330, 15.11.2014, p.1).

4

See “Questions and Answers: Corporate Sustainability Reporting Directive proposal”, European
Commission, 21 April 2021.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Regulatory background on climate-related and environmental
risk disclosures

8

The final timetable will depend on how the Parliament and Council progress in theirnegotiations. The European Financial Reporting Advisory Group (EFRAG) has
committed to sending a first set of draft standards to the Commission in June 2022.
According to the draft timetable, the plan is for large companies to apply thestandards for the first time to reports published in 2024, covering financial year 2023.
Listed small and medium-sized enterprises (SMEs) will have another three years to
prepare for the regulation.
Before adopting the standards, the Commission will consult all stakeholders to help
ensure a broad consensus on the content and coherence with relevant EU legislationand policies.

Box 1
Focus on the role of the European Financial Reporting Advisory GroupThe European Financial Reporting Advisory Group (EFRAG) is a private association established in2001 with the encouragement of the European Commission. EFRAG is majority financed by the EU
and operates on a public-private partnership model. Initially, its role was to advise the Commission
on the incorporation of international financial reporting standards into EU law. In June 2020 theCommission gave EFRAG the mandate to undertake preparatory work for the creation of possible
EU non-financial reporting standards in the context of the revision of the NFRD. In the April 2021
proposal for the corporate sustainability reporting directive (CSRD), EFRAG is identified astechnical advisor to the European Commission and will provide the draft EU sustainability reporting
standards. EFRAG established a group of 80 task force members, secretariat participants andobservers representing EU institutions to:•develop topical standards for environmental factors (climate change mitigation and adaption,water and marine resources, resource use and the circular economy, pollution, biodiversity andecosystems), social factors (equal opportunities, working conditions, and respect for humanrights) and governance factors (supervisory bodies, business ethics and corporate culture,companies’ internal control and risk management systems);•

contribute to international convergence by working with international initiatives, such as the
GRI (Global Reporting Initiative) and the International Sustainability Standards Board (ISSB);•

liaise with the relevant areas within the European Commission to ensure consistency with the
EU legal framework.

At the request of the Commission, EFRAG is currently reforming its governance by integrating thesustainability reporting activities into its organisational structure. This includes a sustainability
reporting Board and a sustainability reporting Technical Expert Group. The target date for the new
governance structure to be operational is the end of March 2022.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Regulatory background on climate-related and environmental
risk disclosures

9

2.2

Bank-specific disclosure standards
While banks will be affected by several layers of regulation applicable to all
corporates, some financial sector-specific guidelines and standards are also being
developed at both international and EU level.
The Basel Committee is currently exploring using Pillar 3 of the Basel framework topromote a common disclosure baseline for climate-related financial risks acrossinternationally active banks. This work will consider the availability and reliability ofsufficiently granular data for banks and their counterparties, and of defined risk
metrics. The Pillar 3 work is part of the Committee's holistic approach to addressing
the range of climate-related financial risks to the banking system, spanning
regulatory, supervisory and disclosure-related elements. This Pillar 3 work will be
performed in cooperation with the ISSB.
In the EU, the EBA ITS 5 on Pillar 3 disclosures on ESG risks were published in their
final version on 24 January 2022. The ITS contain tables, templates and instructions
that specify the requirement set out in Article 449a of the Capital Requirements
Regulation (CRR) 6 to disclose prudential information on ESG risks, includingtransition and physical risks, addressed to large institutions with securities traded ona regulated market of any EU Member State. The ITS include: (i) tables for
qualitative disclosures on ESG risks, (ii) templates for quantitative disclosures on
climate change transitional risk, (iii) a template for quantitative disclosures on climatechange physical risk, (iv) templates for quantitative information and key performanceindicators (KPIs) on climate change mitigating measures, including the green asset
ratio (GAR). The ITS are applicable to large institutions with traded securities andprovide for disclosure of an ambitious range of metrics, for instance in relation tofinanced emissions, alignment metrics and physical risk. Institutions must disclose
this information from June 2022. The first disclosure will take place on an annual
basis, and thereafter disclosures will take place twice-yearly. This means that thefirst disclosure will take place in 2023 for a disclosure reference date of endDecember 2022.
In October 2021 the European Commission published a proposal to amend the CRR,
under which the requirement to disclose information on ESG risks would be applied
to all institutions, (i.e. beyond large, listed banks to which the existing requirement
applies from 2022). However, the proposal also suggests that the future standards
be tailored in terms of periodicity and detail to the size and complexity of theinstitutions, thus respecting the proportionality principle.
In its Guide on climate-related and environmental risks, ECB Banking Supervisionpublished a set of expectations related to disclosures, relying on the provisions ofArticle 431 et seq. of the CRR. The expectations cover not only the content of thedisclosures, but also the policies, processes, methodologies, definitions and criteria
5

EBA/ITS/2022/01, final report implementing technical standards on prudential disclosures on ESG risks
in accordance with Article 449a CRR.

6

Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on
prudential requirements for credit institutions and investment firms and amending Regulation (EU) No
648/2012 (OJ L 176, 27.6.2013, p. 1).

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Regulatory background on climate-related and environmental
risk disclosures10

associated with them. In terms of content, institutions are expected to disclose
climate-related risks that are material, with due regard to the Commission’s
Supplement on reporting climate-related information. They are expected to disclose
their GHG emissions for the whole group, including downstream emissions, as wellas the KPIs and key risk indicators (KRIs) they use for strategy-setting and risk
management.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Regulatory background on climate-related and environmental
risk disclosures11

3

Set-up of the 2021 assessment

3.1

Context of the assessment
In November 2020 the ECB published its Guide on climate-related andenvironmental risks, which set out supervisory expectations relating to risk
management and disclosures. The Guide was accompanied by a report on climaterelated and environmental risk disclosures, in which the ECB concluded thatsignificant efforts were needed to promote transparency in the financial markets on
the climate-related and environmental risks to which institutions are exposed to.
After the Guide was published, the ECB asked institutions to assess themselves
against these expectations and to submit action plans detailing how they would bring
their practices into line with the Guide. In November 2021 the ECB published theresults of its supervisory assessment in a report on the state of climate-related andenvironmental risk management in the banking sector. 7 Covering 112 institutions
directly supervised by the ECB, with €24 trillion of combined assets, this supervisory
assessment was an unprecedented stocktake of European banks’ preparedness toadequately manage and disclose their exposure to climate-related andenvironmental risks. As part of this supervisory assessment, the ECB also assessed
the disclosure policies of the institutions. Individual feedback letters were sent toeach institution summarising the findings of the assessment.
Against this background, ECB Banking Supervision, in cooperation with the national
competent authorities, has performed a thorough assessment of the main risks andvulnerabilities faced by the significant institutions under its direct supervision and has
set its strategic priorities for the next three years. One of the key priorities for 202224 has been to ensure that banks tackle emerging risks, including the risks
stemming from climate change and environmental degradation.
With this in mind, the ECB has planned a number of supervisory activities for 2022. It
will conduct a full review of banks’ preparedness to manage climate-related andenvironmental risks, including deep dives on the incorporation of climate-related andenvironmental risks into their strategy, governance and risk management. This
review will take place in the first half of 2022, in tandem with the execution of abottom-up climate risk stress test and the development of best practices on climate
stress testing. In parallel, the ECB will gradually integrate climate-related andenvironmental risks into its methodology for the Supervisory Review and Evaluation
Process, which will influence Pillar 2 capital requirements, as well as its on-site
inspection methodology.

7“The state of climate and environmental risk management in the banking sector: Report on the
supervisory review of banks’ approaches to manage climate and environmental risks”, ECB, November
2021.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Set-up of the 2021 assessment

12Figure 1
Timeline of the ECB’s projects on climate-related and environmental risks
Nov. 20
Guide on climaterelated andenvironmental
risks
TimelineNov. 21
Report on the state ofclimate andenvironmental risk
management in thebanking sector

Nov 20
Report on institutions’climate-related andenvironmental risk
disclosures

Q3-Q4 22
Pilot on-site inspections
on climate-related andenvironmental risks

Q1-Q2 22
Thematic review ofclimate-related andenvironmental risks

March 22
Second report on
institutions’ climaterelated andenvironmental risk
disclosures

Q2 22
Climate risk stress
test

Source: ECB.

3.2

Scope, sample and objectives of the assessment

3.2.1

Organisation of the assessment
This report is based on a supervisory assessment of institutions’ publicly available
disclosures with a reference date of 2020, or later where available. 8 The information
typically considered in the assessment included: annual reports, non-financial
reports, sustainability reports and Pillar 3 reports. When relevant in the context of
Pillar 3 disclosures, CDP reports and information available on institutions’ websites
were also considered. The ECB also took into account the documents submitted by
the institutions in the context of its 2021 supervisory assessment of banks selfassessments. 9 The supervisory assessment was conducted by the Joint Supervisory
Teams.
Banks were informed of the outcome of the ECB’s analysis of the gaps in theirdisclosures via individual feedback letters. They are expected to further advancetheir climate-related and environmental risk disclosures and to take decisive action toensure that their disclosures comprehensively convey their risk profile and disclose
information that is material. Banks’ disclosure of climate-related and environmental
risks will continue to feature prominently in the ECB’s supervisory activities.

3.2.2

Characteristics of the sample
The assessment covered banks classed as significant institutions (SIs) as at
1 August 2021. It focused mainly on disclosures at the highest level of consolidation
under European banking supervision. For large banks with a parent group outside
the countries participating in European banking supervision, some disclosures atinternational consolidation level were taken into account, when relevant.

8

The latest available documents as at 1 November 2021 were considered.

9

See “ECB publishes final guide on climate-related and environmental risks for banks”, press release,
ECB Banking Supervision, 27 November 2020.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Set-up of the 2021 assessment

13

Table 2
Structure of the sample by country and balance sheet size
Country

AT

BE

BG

CY

> €500billion in
assets

3.2.3

DE

EE

ES

FI

FR

3

3

1

5

€100 billion €500 billion
in assets

2

2

5

1

1

2

€30 billion €100 billion
in assets

2

3

13

6

1

3

< €30 billion
in assets

3

1

1

3

Total
number ofsignificant
institutions

7

6

1

3

GR

4

IE

IT

3

10

3

10

4

LU

LV

MT

NL

PT

SI

Total

2

2

16

3

4

3

23

2

4

3
21

LT

5

10

2

2

3

2

3

3

3

4

3

3

7

3

3

45

3

25

3

109

Objectives of the assessment
The analysis underpinning this report aimed to: i) identify key gaps in climate-related
and environmental risk disclosures in the light of the ECB’s Guide on climate-related
and environmental risks; ii) assess the substantiation of disclosures, i.e. the extent towhich institutions report the methodologies, definitions and criteria underlying thedisclosed figures; and iii) where relevant, identify practices that could be affected byupcoming regulatory changes.
The analysis was geared towards assessing the existence of key disclosure
elements, including the disclosure of exposures to risks that banks deemed material,
while the substance of those disclosures will be subject to further future supervisory
focus. The gap analysis presented in this report should therefore not be considered
exhaustive.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Set-up of the 2021 assessment

14

4

Observations on alignment with ECB
expectations as regards climate-related
and environmental risks disclosures

4.1

Disclosure policies and risk profile transparency

4.1.1

Disclosure policies

Expectation 13.1
Institutions are expected to specify
in their disclosure policies key
considerations that inform theirassessment of the materiality ofclimate-related and environmental
risks, as well as the frequency andmeans of disclosures.

Expectation 13.1 sets out the expectation that banks reflect climate-related andenvironmental risks in their disclosure policies. Institutions are expected to assess
the appropriateness of their disclosures and to specify key considerations
underpinning the assessment of the materiality of the climate-related andenvironmental risk information to be disclosed.
As highlighted in a recent ECB report, 10 only a small subset of institutions have
explicitly integrated climate-related and environmental risks into their disclosure
policies. The vast majority of institutions have not integrated the considerations that
inform their assessment of the materiality of climate-related and environmental risk
information for financial decision-making. While over 20% of institutions disclose theoutcome of their assessment of the materiality of information in their public
disclosure report, only one institution has included the underlying considerations forthis assessment in its internal disclosure policy.
It is important for disclosure policies to specify how the materiality of information on
climate-related and environmental risks is assessed, as this assessment drives
decisions on whether to disclose the information. The disclosure policy should
stipulate that any conclusions on the materiality of information should betransparently substantiated.

4.1.2
Expectation 13
For the purposes of their regulatory
disclosures, institutions are
expected to publish meaningful
information and key metrics on
climate-related and environmental
risks that they deem to be material.

Transparency of the risk profile
Expectation 13 states that institutions are expected to disclose meaningful
information on climate-related and environmental risks that they deem to be material.
As there is no common threshold for materiality, it is important that institutions
conduct an assessment tailored to their business model and risk profile over shortand longer time horizons. Any conclusions on the materiality of information should bebased on concrete quantitative and qualitative thresholds.
As part of the supervisory assessment that formed the basis of the ECB’s recent
report on the state of climate and environmental risk management in the banking

10

See footnote 6.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Observations on alignment with ECB expectations as regards
climate-related and environmental risks disclosures15

sector, 11 the ECB asked institutions about the materiality of climate-related andenvironmental risks for their risk profile. This information was assessed inconjunction with the information on materiality that banks had published as part oftheir disclosures.
Roughly three-quarters of the institutions do not disclose whether climate-related andenvironmental risks have a material impact on their risk profile (Chart 2, panel a).
This shows that these institutions are either unaware of the potential impact of therisks on their balance sheets or are aware of the impact but do not transparently
disclose it. The latter is the case for almost half of these institutions, which do not yet
transparently disclose information on the materiality of climate-related andenvironmental risks, but previously indicated to the ECB that such risks would have amaterial impact for them in the short and/or longer term (Chart 2, panel b).
A quarter of the institutions do disclose the materiality of climate-related andenvironmental risks for at least some risk types, such as credit, market or operationalrisk (Chart 2, left panel). In most cases, however, the disclosures are at a high leveland do not show the full breadth of the underlying analysis.
Institutions are more transparent about their views on how climate change andenvironmental degradation may affect the external environment, and tend toacknowledge the significance of these risks for the economy and society at large.
Chart 2
Transparency on the materiality of climate-related and environmental risks
No disclosure
Disclosure for some risk types
Disclosure for most risk types
Disclosure for all risk types

Banks considering risks material
Banks not considering risks materialb) Of institutions not disclosing such information,
percentages having indicated to the ECB that suchrisks are material to their risk profilea) Institutions disclosing whether climate-related
and environmental risks are material for types ofrisk they are exposed to
100%

4%
5%

80%

20%

100%

80%

60%

60%

38%
40%

72%

40%

20%

20%

0%

0%

34%

Source: ECB.
Note: Panel b) is based on institutions’ views on materiality expressed in the context of the 2021 ECB supervisory assessment.

11

See footnote 6

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Observations on alignment with ECB expectations as regards
climate-related and environmental risks disclosures16

4.1.3
Expectation 13.3
When institutions disclose figures,
metrics and targets as material,
they are expected to disclose orreference the methodologies,
definitions and criteria associatedwith them.

Substantiation of disclosures
Expectation 13.3 of the ECB’s Guide on climate-related and environmental risks
says that, when institutions disclose figures, metrics and targets as material, they are
expected to disclose or reference the methodologies, definitions and criteria
associated with them. Substantiating disclosed figures, metrics and targets in termsof the underlying methodologies, definitions and criteria helps to give market
participants a full picture of the institution’s risk profile. This, in turn, can limit
reputational and liability risks. Moreover, it allows for better comparison of
disclosures across the board.
This type of substantiation is particularly relevant when institutions commit tocontributing to climate-related and environmental goals, such as when they commit
to aligning their exposures with the objectives of the Paris Agreement. Given thegrowing importance of such commitments, it can be expected that users of
institutions’ disclosures will increasingly seek information on the methodologies,
definitions and criteria relating to these commitments, as well as on thecorresponding metrics and targets.
The ECB observed that only about one in five institutions discloses themethodologies, definitions and criteria for all of the figures, metrics and targets
reported as material. More than one-third of institutions do not disclose these
aspects at all. The remainder (around 43%), disclose the methodologies, definitions
and criteria for only some of the figures, metrics and targets reported as material.
As regards the substantiation of commitments to align exposures with the objectivesof the Paris Agreement, among the institutions having made such commitments, lessthan half provide qualitative and quantitative information supporting them. Almost
30% of the institutions that have given such commitments do not provide any
information supporting them, while about a quarter provide only qualitative
information. This means that the majority of institutions disclosing these types ofcommitment do not comprehensively substantiate them in their disclosures, which
potentially exposes them to reputational and liability risks. (see also Box 5).

Good practice
One institution aims to manage its portfolio to achieve net zero emissions by 2050 orsooner as part of its climate strategy, which it made publicly available. It discloses anumber of (interim) targets and related metrics, as well as the progress madeagainst them. For each of these targets and metrics, the institution discloses thesectors covered, the underlying methodology and the scenarios used to draw up
benchmarks. For the methodologies and scenarios disclosed, it reports on theoptions chosen (where methodologies foresee them), the data sources relied on andchanges made with respect to the previous disclosure. The institution also provides
an explanation of its alignment indicators (aligned, mostly aligned or not aligned).

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Observations on alignment with ECB expectations as regards
climate-related and environmental risks disclosures17Box 2
Verification and audit of climate-related and environmental disclosures
Pursuant to Article 431(3) of the CRR, the management body or senior management of theinstitutions must “put in place and maintain internal processes, systems and controls to verify thatthe institutions' disclosures are appropriate and in compliance with the [disclosure] requirements
laid down in” the CRR. Article 431(3) of the CRR further requires Pillar 3 disclosures to “be subject
to the same level of internal verification as that applicable to the management report included in theinstitution's financial report” and institutions to “have policies in place to verify that their disclosuresconvey their risk profile comprehensively to market participants”. Institutions’ disclosures on climaterelated and environmental information may also be subject to external audit or assurance.
The debate on the need for the external audit or assurance of disclosures of climate-related andenvironmental information is gaining traction. At the European level, as mentioned earlier, theEuropean Commission’s proposal for a Corporate Sustainability Reporting Directive introduces, forthe first time, a requirement for reported sustainability information to be subject to external
assurance. In the same vein, the Network for Greening the Financial System calls for external
assurance of climate-related financial disclosures, pointing out that verification and audit
mechanisms for these disclosures are essential for data reliability and comparability. 12 Moreover,the debate has been spurred on by recent findings highlighting concerns about the extent to which
company’ auditors consider climate-related matters in financial statements. For instance, a report by
the Carbon Tracker Initiative found that most of the auditors of a series of financial statements ofpublicly listed carbon-intensive companies did not specify whether and how climate-related matterswere taken into account. 13
The ECB observed that around six in ten of the institutions analysed disclosed that climate-related
and/or environmental information reported in their disclosures had been reviewed or audited by athird party. However, the following should be noted.
First, institutions’ disclosures vary significantly as regards the ease with which users can see
whether or to what extent climate-related and environmental information has been subject toexternal assurance. For instance, such information is often disclosed as part of an overarchingreport that has been externally audited without specifying whether the audit covers the climaterelated and environmental information reported.
On the upside, some disclosures explicitly mention which climate-related and environmental
information formed part of the external assurance process. Other disclosures explicitly exclude
specific types of information or expressly limit the extent of the assurance provided for specificelements of information. This helps users of disclosures understand whether the climate-related
and environmental information they may need has been audited and how this was done.
Second, the type of climate-related and environmental information that is subject to external
assurance is at times limited. For instance, in some cases it appears to be restricted to informationon the energy efficiency of infrastructure and buildings.

12“Progress report on bridging data gaps”, NGFS, May 2021.

13“Flying blind: The glaring absence of climate risks in financial reporting”, Carbon Tracker Initiative, 16
September 2021.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Observations on alignment with ECB expectations as regards
climate-related and environmental risks disclosures18

In particular, the ECB observed that Scope 3 financed emissions are seldom externally audited. Of
the few institutions that disclose Scope 3 financed emissions, about half do not provide information
as to whether the disclosed figures have been externally audited. This is because either they do notdisclose whether the underlying disclosure document was externally audited, or they do not make it
clear whether the external assurance covers the reported Scope 3 financed emissions. In addition,
almost a fifth of institutions that disclose Scope 3 financed emissions explicitly exclude them fromthe scope of external assurance.

4.2

Content of disclosures

4.2.1

Business model and strategy

Expectation 13.4
Institutions are expected to disclose
climate-related risks that arematerial with due regard to theEuropean Commission’s Guidelines
on non-financial reporting:
Supplement on reporting climaterelated information.

Expectation 13.4 of the ECB’s Guide on climate-related and environmental risks setsout expectations as regards the nature of information to be disclosed and makes
reference to the European Commission’s Supplement on reporting climate-related
information. The Supplement points out that it is important “for stakeholders tounderstand the company’s view of how climate change impacts its business modeland strategy, and how its activities can affect the climate, over the short, medium
and long term”. This entails not only the description of climate-related risks to thecompany's business model, strategy and financial planning, but also the descriptionof the ways in which the company’s business model can affect the climate.
57% of the institutions in the sample still do not describe the potential strategic
impact of either transition or physical risk. Instead, many give a general descriptionof climate change or climate-related risks affecting either the economy or thefinancial sector, without a clear link to the bank’s business model. 31% of the banks
disclose a strategic impact of both physical and transition risk, 10% of transition risk
only and 2% of physical risk only. For transition risk, 31% of the banks disclose an
impact in both the short and long term, 7% only in the short term and 3% only in thelong term. For physical risk, 23% of the banks disclose an impact in both the shortand long term, 7% only in the short term and 3% only in the long term.
It could also be observed that for the banks disclosing a strategic impact, the split
between the short term and long term is not easily recognisable, with banks tending
to refer to the risk for the business model in general terms. Furthermore, descriptions
remain very generic, high-level and not always tailored to the profile of the institution
and its exposures to certain sectors or collateral.

Expectation 13.6
Institutions are expected to disclose
the KPIs and KRIs used for the
purposes of their strategy-setting
and risk management, as well as
their current performance against
these metrics.

Under Expectation 13.6, institutions are expected to disclose the KPIs and KRIs
used for strategy-setting and risk management, as well as their current performanceagainst these metrics.
In its report on the state of climate-related and environmental risk management in
the banking sector, the ECB assessed that 25% of the banks were using KPIs fortheir strategy-setting. However, only 6% disclose those KPIs used for strategyECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Observations on alignment with ECB expectations as regards
climate-related and environmental risks disclosures19

setting, and 16% some of them. 87% of the banks do not disclose any KRI used forstrategy-setting, even though some had integrated KRIs in their own risk reports, forinstance in the context of the risk appetite framework. Only 3% of the banks disclose
all KRIs used for strategy-setting.

4.2.2

Governance
The European Commission’s Supplement on reporting climate-related informationreferred to in the ECB Guide expectation 13.4 provides guidance on how toincorporate governance-related information into disclosures. In particular, it sets
guidelines for describing the board’s oversight of climate-related risks andmanagement’s role in assessing and managing climate-related risks, and for
explaining the rationale for the approach taken.
71% of the institutions in the sample describes board oversight of climate-related
and environmental risks. This is a noticeable improvement from the 2020 disclosure
assessment, when only just over half (53%) of the institutions provided disclosureson the board’s oversight of climate-related risks or opportunities.
The institutions assessed have progressed towards adopting a more fully-fledged
methodology of reporting, monitoring and managing the evolution of and exposures
to the risks. For instance, institutions reported making effective use of climate risk
dashboards as a steering tool for overseeing the financial, operational and legal
dimensions of climate risk.
For institutions that provide disclosures on board oversight, the disclosures describe
the structures in place for providing risk information to the board. However, the levelof detail provided is still broad and does not give stakeholders full transparency on
the board’s capacity to oversee climate and/or environmental-related risks at a
granular level. About 30% of the entities either do not disclose or provide limited
qualitative information, mostly related to establishing initiatives, task forces andcommittees that plan to address those risks.

4.2.3

Risk management
The European Commission’s Supplement on reporting climate-related information
points out that it is important “for investors and other interested stakeholders to know
how the company identifies climate-related risks, the principal risks it has identified,and how it manages those risks”. This entails the description of not only theprocesses for identifying, assessing and managing climate-related risks (including
how decisions are taken on mitigating, transferring, accepting, or controlling thoserisks) but also how these processes are integrated into the company’s overall risk
management.
The ECB’s disclosures assessment showed that 71% of the institutions describe
their processes for identifying, assessing and managing climate-related and/or
environmental risks, although only 17% have done this comprehensively in a way
ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Observations on alignment with ECB expectations as regards
climate-related and environmental risks disclosures

20

that allows stakeholders to understand how the elements of climate-related andenvironmental risks have been integrated into the risk management processes interms of interconnections, temporal horizon, proportionality and consistency. This
continues the rising trend identified in the assessments conducted: for 2020 only
57% had described these processes, of which 18% comprehensively.
Expectation 11
Institutions with material climaterelated and environmental risks are
expected to evaluate theappropriateness of their stresstesting, with a view to incorporatingthem into their baseline andadverse scenarios.

Scenario analysis and stress testing are useful tools for risk identification andassessment of climate-related risks, and institutions are therefore expected tointegrate them into their risk management in accordance with Expectation 11 of the
ECB’s Guide on climate-related and environmental risks. 60% of the institutions still
do not make any reference to the use of these tools, although 14% have reported
plans to do so in the short term. However, significant advances have been identified
in this area, with 29% of the institutions already referring to the use of stress testingin their risk management, 25% in conjunction with the use of climate-related scenario
analysis. It should be noted that neither the quality nor the usefulness of any
scenario analysis or stress testing was assessed, but simply whether reference wasmade to the use of these tools. At the same time, the ECB expects that the climate
risk stress test to be performed in the coming months will promote the integration ofthese tools in banks risk management.

Expectation 8
In their credit risk management,
institutions are expected to consider
climate-related and environmental
risks at all relevant stages of thecredit-granting process and tomonitor the risks in their portfolios.

Another important aspect of the risk management practices referred to in the ECB’s
Guide on climate-related and environmental risks is encapsulated in Expectation 8
on the consideration of climate-related and environmental risks at all relevant stagesof the credit-granting process and the monitoring of the risks in banks portfolios. 64%of the institutions in the sample describe how climate-related and/or environmental
risks feed into credit-granting policies and procedures, with the implementation of
exclusion lists, and most of the institutions have disclosed sensitive climate risk
investments (usually in conjunction with the ESG elements). In the 2020
assessment, only 54% of institutions had done so.

Good practice
One institution disclosed its procedure for the management and continuous
monitoring of the environmental and social risks associated with the financing ofcorporate client activities and facilities. A loan application is approved from an ESG
risk perspective when the risks are acceptable and/or the beneficiary agrees to theadditional risk control measures and the implementation of mitigation measures. The
monitoring of loans for ESG risks is part of the periodic loan review, and credit
facilities can be terminated in cases where ESG risk conditions agreed as part of theadditional risk control measures are not met.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Observations on alignment with ECB expectations as regards
climate-related and environmental risks disclosures21

4.2.4
Expectation 13.7
Institutions are expected toevaluate any further environmental
risk-related information needed tocomprehensively convey their risk
profile.

Disclosures of other environmental risksFirst indications 14 show that other environmental risks are of a similar magnitude toclimate-related risks. In a recent report, 15 50 of the world’s leading biodiversity andclimate experts argued that climate change and biodiversity loss cannot be managed
in isolation. At the European level, the European Commission has set ambitious
targets to reduce pollution and biodiversity loss. 16
Against this background, Expectation 13.7 of the ECB’s Guide on climate-related
and environmental risks out sets expectations as regards disclosures of otherenvironmental risks. Banks’ risk management and public disclosures are expected totake a holistic approach to identifying, monitoring and managing all material climaterelated and wider environmental risk drivers.
As pointed out in the ECB’s report on the state of climate-related and environmental
risk management in the banking sector, most institutions still have a blind spot forother environmental risk drivers, such as biodiversity loss and pollution. This is also
the case in this area. Only 25% of the banks in the sample make at least a broadreference to other environmental risks, such as pollution or water usage. Moreover,in most cases those disclosures relate not to the bank’s portfolio, but mostly to its
own operations or to side projects, for instance to protect biodiversity. For the banks
disclosing more precise information, descriptions generally relate to the financing ofspecial projects to reduce environmental impact, but do not give an overview of therisk for the bank’s portfolio. In other cases, banks disclosed that other environmental
risks were covered by climate related-risks, without providing further information.
Only 6% of the banks in the sample disclose minimal analyses of the environmental
impact of their portfolios (e.g. of water or biodiversity footprint, of external costs, oran environmental impact report). Even in those cases, the impact is rarely quantified
and is typically mixed with “positive” financing actions undertaken by the bank.
Approximately 80% of the participating institutions do not disclose information about
their processes to identify and report on the adverse environmental impact of theirlending activities. Such processes are either not disclosed or are still underdevelopment and not yet implemented by the entities.

Box 3
Further observations on disclosures of institutions with a parent group headquarteredoutside the countries participating in European banking supervision
The assessment covered disclosures by 12 institutions with a parent group headquartered outside
the countries participating in European banking supervision. Since several of these banks areglobal systemically important banks (GSIBs), they provided extensive disclosures at group level
14

See van Toor, J., Piljic, D., Schellekens, G., van Oorschot, M. and Kok, M., “Indebted to nature.
Exploring biodiversity risks for the Dutch financial sector”, De Nederlandsche Bank and PBL
Netherlands Environmental Assessment Agency, June 2020.

15

Pörtner, H.O. et al., “IPBES-IPCC co-sponsored workshop report on biodiversity and climate change”,
IPBES and IPCC, 2021.

16

See the European Commission’s website for more information on the EU’s zero pollution action planand biodiversity strategy for 2030.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Observations on alignment with ECB expectations as regards
climate-related and environmental risks disclosures22

(e.g. annual report, non-financial reports, Pillar 3 reports, TCFD reports and ESG reports), which
considered where they were materially applicable to the group’s EU subsidiary and relevant to theirbusiness model and geography. In general, progress differed between the parent group and the EU
subsidiary, and risks were partially acknowledged primarily through consolidated publications.
The institutions disclose methodologies and definitions for at least some metrics. Half of the
12 banks do so for all metrics over the short and medium term for both physical and transition risks.
Board oversight of climate-related and environmental risks is primarily described on the basis ofgroup publications. Similar findings are applicable to the operations for managing climate-related
and environmental risks with key components such as credit-granting processes, climate scenario
analysis and stress tests. Active reporting targets are in place for most institutions but there arediverse practices in monitoring, with less than half of the institutions implementing KPIs or KRIs
measured against targets. Although Scope 1,2 and 3 emissions are disclosed by all institutions,only two capture financed emissions within Scope 3, while the rest focus on own operations. All ofthese banks have stated a commitment to align with the Paris Agreement. This ambition is primarily
articulated in a qualitative manner. Portfolio alignment metrics are disclosed only for a quarter of
institutions and covering a limited number of carbon-intensive sectors (e.g. one or two sectors or
more, and at best oil and gas, cement, iron, automotive and power generation).
Two-thirds of the banks disclose information on the potential impact of environmental risks on
business model and risk profile. However, they provide limited information about processes for
identifying and reporting on adverse environmental factors (e.g. water or biodiversity footprint)
affecting lending activities. No information has been provided by these banks regarding either the
future EU Taxonomy or energy performance certificates (EPCs) of real estate portfolios.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Observations on alignment with ECB expectations as regards
climate-related and environmental risks disclosures23

5

Further observations on metrics, targets
and commitments

5.1

Selected metrics
Disclosure of Scope 3 financed emissions

Expectation 13.5
Institutions are expected to disclose
the institution’s financed Scope 3
GHG emissions for the wholegroup.

The ECB’s Guide on climate-related and environmental risks sets out expectations
as regards disclosure of Scope 3 financed emissions. Scopes 1, 2 and 3 arecategories that can be used by organisations as a conceptual tool to formalise their
GHG emission accounting while avoiding double counting. The Greenhouse Gas
Protocol is a common reference in that regard. Scope 3 covers all indirect GHG
emissions that occur in the value chain of the reporting company, including both
upstream and downstream emissions. In the case of a credit institution, this includes
the emissions of counterparties linked to lending portfolios, or in other terms“financed emissions”, and which are expected to represent the large majority ofemissions. Although the ECB does not prescribe the use of a specific measurement
and/or attribution methodology, institutions are encouraged to adopt a granularapproach to measuring carbon emissions, while remaining consistent with the GHG
Protocol, as set out in the European Commission’s Supplement on reporting climaterelated information. This could, for instance, entail a project-by-project approach tomeasuring the carbon intensity of large corporate portfolios and the property-byproperty measurement of actual energy consumption or classification of energy
efficiency for real estate portfolios. Furthermore, the EBA ITS on Pillar 3 disclosures
on ESG risks will also require large banks with traded securities to disclose Scope 3
financed emissions for selected portfolios.
While 74% of banks in the sample disclose Scope 1, 2 and 3 emissions, only 15%
actually disclose Scope 3 financed emissions (or some of them), which is only aslight increase compared with the 2020 assessment (14%). In numerous cases
banks do not say explicitly that their overall Scope 3 emissions do not incorporate
those financed emissions, making it challenging to compare Scope 3 emissions
across banks. When banks reported their Scope 3 financed emissions for at least
one portfolio, those Scope 3 financed emissions represented 93% of their total
Scope 1, 2 and 3 GHG emissions.
The following portfolios tend to be covered by financed emissions reporting: listed
equity and corporate bonds (6% of all banks in the sample), business loans (4% of
all banks in the sample), project finance (1% of all banks in the sample), commercial
real estate (3% of all banks in the sample), mortgages (6% of all banks in thesample), and motor vehicle loans (2% of all banks in the sample). For the institutions
disclosing Scope 3 financed emissions, the Partnership for Carbon Accounting
Financials (PCAF) methodology was quoted by 8% of the banks, and United Nations
Environment Finance Initiative (UNEP-FI) methodology was quoted in 4% of cases.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Further observations on metrics, targets and commitments

24For all other Scope 1 and 2 emissions, there is no mention of methodology in 76% ofcases.

Disclosure of information related to energy performance certificates
The EBA ITS templates cover information related to energy performance certificates(EPCs). For their real estate portfolios, institutions will be requested to disclose
information on the energy efficiency of the underlying real estate collateral, including
the distribution of collateral by EPC label and energy consumption. The ECB lookedat whether institutions already disclose information about EPCs for their financed
real estate portfolios, which may be an important indicator of exposure to transition
risk. More than 80% of institutions do not do so. Some institutions (around 4%)
disclose EPCs only for their residential real estate portfolios and others (around 3%)
only for their commercial portfolios. Less than one in ten institutions disclose suchinformation for both their residential and commercial real estate portfolios.

Information related to portfolio alignment
The transition to a low-carbon and more sustainable economy requires a structuraltransformation of economic activities, and in particular the production, transportationand consumption of energy. For climate change, specifically, this entails a change
from high to low-carbon technologies for a variety of sectors, including the fossil fuel,energy production, automotive, steel and aviation sectors. Various agencies,
including the International Energy Agency (IEA), have set out pathways for thetransformation of these sectors to achieve a clean and resilient energy system. 17
Financial institutions have endeavoured to assess and disclose the alignment of theirfinancing activities in these key transition sectors against science-based pathways.
As pointed out by the NGFS, 18 such context-based metrics are critical to gaining abetter understanding of how exposures will evolve over time and comparing theseagainst trendlines.

17“Net Zero by 2050 – A Roadmap for the Global Energy Sector”, International Energy Agency, revised
version, October 2021.

18“Progress report on bridging data gaps”, Network for Greening the Financial System, May 2021.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Further observations on metrics, targets and commitments

25

Chart 3
Number of banks that conducted an assessment of portfolio alignment (by sector)
Residential real estate1

Commercial real estate

1

Aviation

1

Steel
Shipping
CementAutomotive
Oil and gas
Power generation
Total

4
5
6
8
9
12
13

Source: ECB.

The chart shows the number of banks that disclose information on the alignment of
their own portfolios. At this stage, only 13 banks, or 12% of banks in the sample,
disclose one or several alignment metrics. Banks that have reported that they are
working on pilot testing or developing alignment approaches are not included in thisoverview. Moreover, banks may also disclose various additional metrics that are notnecessarily assessed against a transition pathway. These are not included in thisoverview.
While the ECB encourages banks to disclose results from pilot exercises that havebeen conducted, it points out that institutions are required to comprehensively
disclose their risk profile. Some banks have started to disclose results from pilotalignment assessments relating to individual sectors that may not provide arepresentative view of risks from potential misalignments (e.g. if a bank with a large
power generation portfolio only discloses information on its comparatively small
automotive portfolio). Similarly, some bank’s disclosures focus only on thosetechnologies for which they have set policies or targets (e.g. if a bank discloses itsalignment in relation to coal power generation but not the production capacities forother high-carbon technologies related to the same exposures). Lastly, various
banks have selected benchmarks (e.g. different geographical regions and/or
scenarios) that may not be representative of their portfolio and provide no
justification for their selection.
In future, the EBA ITS will require institutions to disclose relevant alignment metrics
by sector and estimate the distance between their financing and the 2030 milestones
defined by the IEA scenario. 19 Moreover, institutions will be required to developtransition plans and manage and disclose risks relating to misalignment with thetransition, and supervisors will be mandated to scrutinise these plans.

19

See footnote 5.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Further observations on metrics, targets and commitments

26

Good practice on the transparent disclosure of portfolio alignment
methodologies, metrics and targets
The chart and table below show stylised examples from banks’ disclosures ofdefinition, assessment, monitoring and steering of alignment metrics for various
portfolios. The banks in question set net zero targets by 2050 and endeavour to aligntheir portfolios to science-based transition pathways, including technology pathways
originating from the IEA Net Zero 2050 scenario. The banks disclosed dashboards
that displayed the performance of the banks’ loan books in various transition sectors,
such as power generation, oil and gas, automotive, steel, cement and real estate,against a science-based transition pathway. The banks disclosed the precise
indicators used, the underlying methodologies and reference scenarios per indicator.
For each of the indicators, the bank disclosed its current and projected performanceagainst the pathway and set associated targets.
Chart 4Stylised dashboard of banks’ alignment metrics and targets
IEA Net Zero target
Bank Portfolio
Bank Target
Bank Portfolio projection50

Oil and gas

700

45

Coal power generation

600

40
500

35

kg CO2 / MWh

Share of oil as a percentage of total energy
investments

Share of oil and gas target
Bank portfolio
Bank target
Bank portfolio prediction

30
25
20
15

400
300
200

10

100

5
0
2018

2020

2022

2024

2026

2028

0
2018

2030

Combustion automotive

2.5

Tonnes of CO2 per tonne of steel

Share of EVs as a percentage of total
production capacity

120
100
80
60
40
20

0
2018

2021

2024

2027

2020

2022

2024

2026

2028

2030

2026

2028

2030

IEA stylised scenario
Bank portfolio
Bank target
Bank portfolio projection

EU Net Zero target
Bank portfolio
Bank target
Bank portfolio prediction

2030

2033

2036

Steel production

2.0

1.5

1.0

0.5

0.0
2018

2020

2022

2024

Source: ECB.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Further observations on metrics, targets and commitments

27

Table 3
Stylised overview of the approach for measuring performance against targets
Indicator

Scenario

Renewable energy investment as apercentage of total energy investment

Baseline

Target for 2030

Realisation

2018

50%

Off track

Emission intensity of steel

IEA Net Zero Emission scenario

2018

1.1

Target met

Share of combustion engines in Automotive
production

EU ban on fossil fuel cars by 2035

2018

36%

On track

Share of oil and gas in the portfolio energymix

IEA Net Zero Emission scenario

2018

25%

Target met

Power generation emission intensity

IEA Net Zero Emission scenario

2018

293

On track

Information related to the disclosure of Taxonomy-aligned
exposures
The Taxonomy Regulation is expected to have an impact on banks’ disclosures in
the future. The EBA has developed certain KPIs, including a green asset ratio(GAR), and integrated them into its final ITS on Pillar 3 disclosures on ESG risks(see Box 4).
Several banks have started to mention the Taxonomy in their disclosures. 26% of thebanks in the sample made a qualitative reference to the Taxonomy, usually in thefollowing contexts.
•

Banks refer to the preparatory work for screening their portfolios to identify theassets in questions. They usually mention that the work will be gradual andsector by sector. Some banks list some of the challenges they encountered intheir preliminary work (e.g. loans for which the purpose is not known).

•

Some banks already disclose how they might or will use the taxonomy, forexample to develop a strategic KPI in order to expand green exposures; forintegration in sectoral credit-granting policies; or as the basis for a long-term
objective for increasing the share of green assets in their portfolio.

7% of the banks in the sample provided some quantitative information relating to theTaxonomy. These were mostly the banks disclosing case studies showing theapplication of the Taxonomy to certain portfolios (e.g. retail mortgage loans or motor
vehicle loans). Some disclosed that they have identified Taxonomy-aligned
exposures for some of their asset management funds.

Box 4
Article 8 of the Taxonomy Regulation
The Taxonomy Regulation was published in the Official Journal of the European Union on 22 June
2020 and entered into force on 12 July 2020. It establishes a common classification system ofenvironmentally sustainable economic activities at EU level. Article 8 of the Taxonomy Regulation
requires any undertaking subject to the NFRD to disclose information on how and to what extent its

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Further observations on metrics, targets and commitments

28

activities are associated with economic activities that qualify as environmentally sustainable under
the Taxonomy Regulation.
Following a call for advice issued by the European Commission in September 2020, in March 2021
the European Banking Authority (EBA) proposed KPIs and a methodology for disclosures under
Article 8 of the Taxonomy Regulation, including a green asset ratio. In line with this advice, theCommission published the Delegated Regulation of 6 July 2021 supplementing Regulation (EU)2020/852. The Delegated Regulation defines the green asset ratio for banks’ disclosures on thetaxonomy-alignment of their exposures.
In its final draft ITS on Pillar 3 disclosures on ESG risks, the EBA adjusted its templates to reflect
the Delegated Regulation and integrated the KPIs and other quantitative information on climatechange mitigating measures, including the green asset ratio. The disclosure of information on thisratio will apply in 2024 for data as of end-2023, in line with the application date set in the DelegatedRegulation.

5.2
Expectation 13.6
Institutions are expected to disclose
the KPIs and KRIs used for the
purposes of their strategy-setting
and risk management, as well as
their current performance against
these metrics.

Targets and commitments
Expectation 13.6 of the ECB’s Guide on climate-related and environmental risks
states that institutions are expected to disclose the KPIs and KRIs used for the
purposes of their strategy-setting and risk management, as well as their current
performance against these metrics. They are also expected to disclose the metrics
used in the context of strategy-setting and risk management, including targets andthe current performance of the institution against those targets. Access to the targets
used by an organisation allows investors and other stakeholders to better assess its
general exposure to climate-related issues and progress on managing or adapting tothose issues. It also provides a basis upon which investors and other stakeholders
can compare organisations, for example as regards their level of ambition in tacklingclimate-related and environmental risks. This is also why, like other metrics, targets
need to be well substantiated, and their definition and the criteria underlying theircalculation well explained, in the spirit of Expectation 13.3 (see also Section 4.1.3).
Only half of the banks in the sample disclose KPIs or KRIs relating to climate-related
and/or environmental risks. Within this group, many indicators disclosed relate togreen financing rather than risks per se. Furthermore, only 32% disclose KPIs or
KRIs and assess their own performance against them. For example, many banks
intend to hold a certain amount of green bonds, but do not specify whether thisindicator relates to the stock for the flow or where they stood in terms of financing at
the time of the report.
50% of the banks disclose targets. Moreover, many of these targets relate to thenon-financing activities of the bank: electricity consumption, business trips, etc.
Several banks have targets in place covering Scope 1, 2 and 3 emissions, but they
do not all clearly state when those emissions do not cover financed emissions. Sometargets relate to green financing, but are not always set in context (e.g. as aproportion of the balance sheet, or as a proportion of new financing). Some targets

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Further observations on metrics, targets and commitments

29relate to the ending of certain financing activities; however, it is not always disclosed
whether those exposures are material for the bank or how the bank will reduce its
exposures.
It could be observed, however, that a growing number of banks disclose alignment
metrics with clear targets in line with a net zero pathway (see also Section 5.1.1).

Box 5
Achieving net zero – commitments from banks
In the run-up to the COP26 summit held in Glasgow last year, the Glasgow Financial Alliance for
Net Zero (GFANZ) was established by Mark Carney, the UN Special Envoy for Climate Action and
Finance and Finance Adviser to the UK Prime Minister for COP26, and the COP26 Private Finance
Hub in partnership with the UNFCCC Climate Action Champions, the UN’s Race to Zero campaign
and the COP26 Presidency. The initiative recognises that, in order to keep alive the goal of limiting
global warming to 1.5 degrees Celsius, all companies, including banks, need to adapt theirbusiness models and develop and implement credible transition plans. 20 Towards the end of 2021
about 30% of the institutions whose disclosures are analysed in this report – which amounts toroughly 75% of total assets under ECB supervision – joined GFANZ, and membership is growing.
Institutions joining the GFANZ via its Net-Zero Banking Alliance (NZBA) initiative, commit to aligning
their lending and investment portfolios with net zero emissions by 2050 and to setting intermediatetargets for 2030 or sooner, as well as for every five years thereafter. Members of the NZBA, which
is anchored in the UN’s Race to Zero campaign also commit to developing and disclosing transition
plans, being transparent about their progress against targets, and using offsets only under strict
conditions. 21
The stated focus of GFANZ is on near-term actions. 22 This is not only important for meeting theobjectives of the Paris Agreement, 23 but also has prudential relevance. It can help to manage thebuild-up of excessive prudential risks, particularly transition risks. The ECB’s benchmarking showsthat institutions have systematically failed to establish a clear link between their stated carbon
emissions goals for 2050 and their concrete actions in the present and medium term. 24 Similarly, inthis report, the ECB finds that most institutions stating commitments to align their exposures withthe objectives of the Paris Agreement do not comprehensively substantiate these commitments intheir disclosures (see Section 4.1.3 above).
The ECB observed that, at the current juncture, the same observation applies to the GFANZ
members whose disclosures were analysed in this report. Almost all of them disclose a commitment
to align their exposures with the objectives of the Paris Agreement (these GFANZ members make20

See “The Glasgow Financial Alliance for Net Zero. Our progress and plan towards a net-zero global
economy”, GFANZ, November 2021.

21

For more information see the “Net-Zero Banking Alliance”, pages on the United Nations Environment
Programme Finance Initiative (UNEP-FI) website.

22

See “The Glasgow Financial Alliance for Net Zero. Our progress and plan towards a net-zero global
economy”, GFANZ, November 2021.

23

See “Emissions Gap Report 2021: The Heat Is On – A World of Climate Promises Not Yet Delivered”,
United Nations Environment Programme, Nairobi,26 October 2021.

24

See Elderson, F., “Overcoming the tragedy of the horizon: requiring banks to translate 2050 targets into
milestones”, keynote speech at the Financial Market Authority’s Supervisory Conference, Vienna,
20 October 2021.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Further observations on metrics, targets and commitments30

up around 40% of the institutions disclosing such commitments). However, less than half provide
qualitative and quantitative information supporting their commitment. More than 20% do not provide
any such information (here, GFANZ members fare slightly better than the overall sample ofinstitutions disclosing such commitments, of which almost 30% do not provide any information
supporting them). However, it should be noted that almost all GFANZ members within the scope of
this report joined the initiative after the reference date for analysis of the disclosures.
GFANZ has developed a set of elements for institutions to consider when preparing their transition
plans. These elements include the disclosure of Scope 3 financed emissions and of the policies,
metrics and methodology used for institutions’ net zero portfolio emissions targets. GFANZ also
supports members in the rollout of portfolio alignment methodologies. The ECB notes that work inthis area is gaining momentum. This is also exemplified by the inclusion of portfolio alignment
metrics in the EBA ITS.

ECB report on banks’ progress towards transparent disclosure of their climate-related andenvironmental risk profiles – Further observations on metrics, targets and commitments31© European Central Bank, 2022
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