Recent regulatory and legislative initiatives reflect growing international awareness of the great value of transparent disclosures on C&E risks. In Europe, large banks will have to disclose climate-related information under the European Banking Authority’s comprehensive implementing technical standards. They will have to already do so by early 2023, referencing data from the end of 2022. The information requested from banks includes qualitative and quantitative information on environmental, social and governance risks, as well as indicators such as alignment metrics and the green asset ratio – thus significantly raising the bar in terms of C&E risk reporting. In the same vein, sustainability reporting obligations under the European Commission’s Corporate Sustainability Reporting Directive will shortly apply to large corporations, including banks under our direct supervision. Main findings of the ECB report on banks’ progress towards transparently disclosing their C&E risk profile The ECB is also well aware of the importance of transparent disclosures. We published our first stocktake of banks’ C&E disclosures back in November 2020. We did so precisely to give banks the time and the incentive to improve the quality of their own disclosures in this field. Back then, virtually none of the institutions in the scope of the assessment met our expectations as set out in the ECB Guide on climate-related and environmental risks, which we published at the same 2/4  BIS central bankers' speeches  time. The second stocktake, published today, shows that the quality of banks’ disclosures has improved since then, especially in the areas of risk management, governance and business models.

And in 2022 we launched the climate risk stress test and a thematic review of how banks incorporate C&E risks into their processes, a fully-fledged supervisory exercise, involving teams responsible for the day-to-day supervision of banks. At the same time, we are gradually integrating C&E risks into our regular supervisory methodology, and how banks manage these risks will ultimately impact their Pillar 2 capital requirements. The ECB’s supervisory actions on climate are part of broader international efforts to advance the 1/4  BIS central bankers' speeches  supervision and regulation of C&E risks. At global level, the Basel Committee on Banking Supervision recently concluded a public consultation on draft supervisory principles for the prudential treatment of climate-related risks, and the input they received is now being reviewed with the aim of finalising those supervisory principles. This is part of a broader workplan of the Committee to evaluate how to consider climate-related financial risks in all pillars of the Basel framework. Supervision, regulation and – the topic of the ECB report that is published this morning – disclosures. The importance of transparent disclosures There is growing international awareness of the great value of transparent disclosures. Disclosures that are clear and easy to understand tend to benefit any company, banks included. Generally, companies have strong incentives to publish frank and meaningful disclosures because transparency is usually rewarded by investors; it helps reduce uncertainty and allows all interested parties to feel they are making safe investments based on trustworthy data. This is particularly true for climate-related and environmental risks.