. and it is also critical for banks to have the necessary resources to implement well - designed frameworks across the institution. 5 current state of c & e risk management in banks let me now turn to where banks under our supervision stand in incorporating climate and environmental aspects into their risk management. in our continuous supervisory 2 / 6 bis - central bankers'speeches dialogue, we have urged banks to ensure the sound management of c & e risk, using the ecb's 2020 supervisory expectations as a starting point. failing to adequately manage c & e risks is no longer compatible with sound risk management, just as it would not be acceptable to turn a blind eye to other relevant drivers of standard risk categories. the ecb has consistently reminded that this is not a call on banks to divest from carbon - intensive industries. it is, instead, a call to actively manage the risks, for instance, through client engagement and transition and resilience finance. in other words, banks must be cognizant of the risks they take and manage them accordingly. imagine a bank that has a client operating in a high - emitting sector such as power production from fossil fuels. instead of abandoning the relationship with this client, the bank can continue lending to it through transition finance, for example to fund expansion of renewable power production. we see more and more banks doing exactly that : managing risk through active client engagement and by offering transition finance products, which also represent a business opportunity for banks. since we first started discussing c & e risks with banks back in 2019, progress has undoubtedly been made. banks have taken steps to integrate c & e risks into their strategy, governance and risk management. for example, we see that banks'materiality assessments and business environment scans are becoming more robust compared with their initial submissions. however, it is also true that a number of banks did not perform an adequate materiality assessment. as a result, they received binding supervisory decisions, including the potential imposition of periodic penalty payments if they fail on their requirements. in other words, we have told those banks to remedy the relevant shortcomings by a certain date. if they do not comply, they will have to pay a penalty for every day that the shortcomings remain unresolved. it is a step that we do not take lightly : it is not about forcing banks to do something that is merely " nice to have " ; it is about compelling banks to manage material risks adequately and in a timely manner. although at

frank elderson : making banks resilient to climate and environmental risks – good practices to overcome the remaining stumbling blocks speech by mr frank elderson, member of the executive board of the european central bank and vice - chair of the supervisory board of the european central bank, at the 331 st european banking federation executive committee meeting, frankfurt am main, 14 march 2024. * * * introduction thank you for inviting me to this exchange on the current state of climate - related and environmental ( c & e ) risks. we have come a long way since 2019, when we first started discussing c & e risk management with you – the european banking associations and the european banks you represent. it is thanks to the hard work perfomed every day by thousands of dedicated climate risk experts in banks all over europe that notable expertise has been built up and vital progress achieved. and, thanks to the ongoing dialogue between supervisors and banks, the risks stemming from the climate and nature crises are increasingly being integrated into banks'risk management, strategies and governance. it is in precisely that spirit that i am here today : to listen to you, to discuss the challenges you face, but also to share the ever - growing set of good practices that we have observed. to suceed in our common goal of making banks resilient to climate and nature risks, it is vital that we maintain this dialogue and facilitate the exchange of good practices. climate risks are increasingly materialising before we get into the nitty gritty of c & e risk management, i will start by saying a few words on the risks themselves. the far - reaching impacts of climate change and nature degradation are more apparent than ever : 2023 was the hottest year ever recorded, while extreme weather events are becoming more frequent and increasingly these events also leave their mark on the economy. for instance, last year devastating floods in slovenia showed that just a couple of days of heavy rain can lead to damages, equivalent to 16 % of gdp1. climate risk events are not just one of the many standalone risks that banks face. they are instead a driver for each traditional type of risk reflected in the basel framework, from credit risk, liquidity risk and market risk to reputational and operational risk, including legal risk. for example, floods may impair a company's production facility, which then affects its ability to repay a loan, in turn leading to higher credit risk for the bank. 1 / 6 bis - central bankers'speeches consider what happens if your