As European central banker, supervisor and scholar of the law I will be even more forceful: our mandate requires us to be ready. 1. “The looming legal showdown on climate justice”, Financial Times, 10 November 2022. 2. Article 2(1)(a) of the Paris Agreement. 3. Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the framework for achieving climate neutrality and amending Regulations (EC) No 401/2009 and (EU) 2018/1999 (“European Climate Law”) (OJ L 243, 9.7.2021, p. 1). 4. Recital 25 of the European Climate Law. 5. Article 5 of the European Climate Law. 6. Case C-11/00, Commission v ECB, EU:C:2003:395. 7. Article 284(3) TFEU and Article 15.3 of the Protocol on the Statute of the European System of Central Banks and of the European Central Bank. 8. Articles 127(1) and 130 TFEU. 9. “ECB presents action plan to include climate change considerations in its monetary policy strategy”, press release, ECB, 8 July 2021. 10. Currently under revision. See Proposal for a Directive of the European Parliament and of the Council on the energy performance of buildings (recast) COM/2021/802 final. 11. See “ECB Banking Supervision – Assessment of risks and vulnerabilities for 2021”, ECB, 2021. 12. See Guide on climate-related and environmental risks, ECB, November 2020. 13. Proposal for a Directive of the European Parliament and of the Council amending Directive 2013/36/EU as regards supervisory powers, sanctions, third-country branches, and environmental, social and governance risks, and amending Directive 2014/59/EU (COM/2021/663 final). 14. See also Articles 73 and 74 CRD VI.

Therefore, the Climate Law and its consequences feature in our supervisory assessments, interactions with the banks and measures we take. Why is that? Banks will be at the forefront of the energy and climate transition, whether they want to be or not. Their clients will face increasing hazards from climate change and environmental degradation as well as increasing regulation. Some clients will have to wind down their operations, others will be stuck with stranded assets. A mandatory energy label has been introduced for real estate[10], affecting the value of banks’ mortgage portfolios. Therefore, the ECB has identified exposure to climate-related and environmental risks as a key risk driver in the Single Supervisory Mechanism (SSM) Risk Map for the euro area banking system. [11] In order to guide banks regarding their risk management, the ECB has published supervisory expectations in its Guide on climate-related and environmental risks. [12] In addition, we have conducted a comprehensive review of banks’ practices related to strategy, governance and risk management on climate risks – the 2022 thematic review. We will continue to set expectations for banks to progressively manage risks on this front. These expectations are certainly not open ended. By the end of 2024, banks need to be in full compliance with all the supervisory expectations we set out in 2020. Banks need to build their capabilities to withstand climate and environmental risks. We are happy that the Commission and the Council have acknowledged that this needs to have a foundation in prudential regulation as well.