speech good, bad and hopeful news : the latest on the supervision of climate risks keynote speech by frank elderson, member of the executive board of the ecb and vice - chair of the supervisory board of the ecb, 10th annual conference on bank steering & bank management at the frankfurt school of finance & management frankfurt am main, 22 june 2022 i understand that today ’ s audience includes managers and experts from banks and banking associations, supervisors, academics and students. so this is an ideal platform for exchanging views on the financial sector ’ s role in addressing the risks of the ongoing climate and environmental crises. conferences like these are a chance to inform each other of what we are doing and to share the knowledge and expertise we are accumulating to gear ourselves to a world that is already undergoing a climate crisis. physical and transition risks from climate change and environmental degradation are already materialising all around us. today i will update you on the recent progress on both the international agenda and the ecb ’ s own supervisory agenda on climate - related and environmental risks, or c & e risks for short. i will share some preliminary findings from our review of how banks incorporate c & e risks into their risk management practices. there will be good, bad and hopeful news. the good news is that, one year after my first speech on the state of c & e risk management by euro area banks as vice - chair of the ecb ’ s supervisory board, banks are starting to progress in their management of these risks. the bad news is that this progress is not across the board, and laggards remain in all areas. but there is hopeful news too. the silver lining is that the state - of - the - art governance and risk management practices now being adopted by some banks confirm that what the ecb is asking is possible. we just need all banks to do it. the new basel committee on banking supervision principles for the effective management and supervision of climate - related financial risks all around the world, there is a growing consensus on the urgency of dealing with the climate and environmental crises. for banks, the prominence of c & e risks is significant, too. during various supervisory exercises recently conducted by the ecb, most banks recognised that they have significant exposures to these risks, which they expected to materialise in the short to medium term. and we see that banks are consequently allocating more and more financial and human resources to managing these risks. and this is what supervisors around the world expect from

years since we started taking concrete steps to include c & e risks in our ongoing supervision. in 2020 we published a guide on c & e risks, which outlined our expectations for the management and disclosure of these risks. in 2021 we published a report on banks ’ self - assessments of where they stood relative to those expectations and shared some of the good practices we had observed in the banking industry. early in 2021 we also asked all banks under our supervision to devise concrete action plans for ensuring full alignment with our expectations. banks provided us with such plans, and where we found them deficient, we asked them to be sharpened, which was subsequently done. in 2022 we continue to check progress under these action plans by assessing whether banks have advanced the plans submitted in 2021 and the extent to which they use them as an effective steering instrument to advance their c & e risk practices. moreover, in 2021, for the first time, c & e risks were qualitatively integrated in the supervisory review and evaluation process ( srep ). this year, our joint supervisory teams will complement the srep assessments with their observations from a climate risk stress test and a thematic review on how banks incorporate these risks into their day - to - day business. this will also be qualitatively integrated in the srep scores, which may have an indirect impact on minimum capital requirements. we are also launching on - site inspections of banks ’ management of these risks and are rounding off a targeted review focusing on commercial real estate exposures. all initiatives – the stress test, the thematic review and the on - site inspections – aim to monitor banks ’ alignment with the expectations set out in the ecb ’ s guide on c & e risks. they are part of what i described at the start of the year as a move towards an immersive approach to the management of climate - related and environmental risks in the banking sector. [ 1 ] we intend to fully integrate c & e risks in the regular supervisory dialogue and cycle and keep them there, treating them in the same way as any other material risks that banks face. the climate risk stress test, the results of which will be published in july, constitutes an unprecedented effort, also on the ecb ’ s part, to more fully understand how exposed euro area banks are to c & e risks. it will also give us a clearer picture of how resilient they are against these risks, as we are assessing, among other things, banks ’ climate risk stress