also emerging as a material source of financial risk. our supervisory expectations explicitly apply to the management of both climate - related and environmental risks, both of which are a material source of financial risk. however, many banks have so far come up with only a high - level description of the general impact on vulnerable sectors, like agriculture, mining and manufacturing, and have yet to perform adequate materiality assessments. as the two supervisory exercises demonstrated, for the glass to become full – that is complying with our supervisory expectations – banks must considerably increase the pace of progress. and i will now outline how this can be done. the way ahead for banks and supervisors in line with the guiding principle that no material risk should remain unaddressed, we expect all banks under our supervision to be fully aligned with our expectations by the end of 2024 at the latest. this clear implementation deadline also ensures a level playing field for all banks in the banking union. in other words, after 2024, a limbo of identifying a risk as material but not adequately addressing it will no longer be tolerated. however, we are mindful of the challenges banks may face in aligning with our supervisory expectations. to smooth the transition further, we have also set some intermediate deadlines for banks to reach specific milestones. for example, by the end of march 2023 we expect all banks to have a sound and comprehensive materiality assessment and business environment scan in place. this means that banks must make an explicit judgement on the impact of c & e risks through various transmission channels in the short, medium and long term across their portfolios. insufficiently documenting the non - materiality of certain portfolios will no longer be acceptable. let me insist that by now all key ingredients to make c & e risks an integral part of banks ’ strategy and risk management are well known. but you – the banks – are in the lead when it comes to translating ambitions into practice by designing and implementing tools to adequately manage these risks. one of the silver linings of our supervisory exercises last year is that we have published the good practices observed in both the climate stress test [ 7 ] and the thematic review [ 8 ]. to give a telling example, in the area of governance some front runners have already integrated c & e risks into the work of the management body. for example, in one bank the management body approves the environmental strategy and risk management framework and oversees their implementation in day - to - day processes. it is supported in this work

therefore need to make existing methodologies more stable and, where possible, simpler. ecb banking supervision is currently working on a revised methodology for setting pillar 2 capital requirements, which will be published by the end of 2024 and fully applied in the 2026 srep cycle. making existing methodologies simpler and more stable also enables supervisors to focus methodological work on novel risks. 6. making better use of it systems and analytics : reliable it systems and good data analytics are crucial if banks are to serve their clients well. they are equally important for supervisors. evolving supervision thus requires continued investment in it systems, not least to reap efficiency gains from the use of artificial intelligence. we have therefore prioritised our digital agenda. our it strategy for the years 2024 - 28 foresees continued investment to improve efficiency, access to data, risk analysis and collaboration. for instance, fit and proper assessments account for almost half of supervisory decisions. they are used to assess whether members of a supervised bank's management body are suitable for their roles. the heimdall tool supports experts in processing the vast amounts of information they receive when carrying out these assessments. this helps improve the quality of assessments, as the manual workload is reduced and supervisors can focus on more complex cases. another example is athena, a web - based platform helping supervisors find, extract and compare information from a corpus of millions of articles, supervisory assessments and bank documents. supervision will not become " light touch " these changes will improve european banking supervision. they will make supervisory processes more targeted, efficient, predictable and transparent. the srep will become shorter. from 2026 onwards, srep decisions will be sent to most banks by the end of september, rather than december as is currently the case. this will reduce the time lag between the identification of deficiencies and the remedial action that banks are expected to take. supervision will become more intrusive by using the full range of supervisory tools and moving up the escalation ladder more swiftly when findings are not remediated. the reformed srep will not mean less supervision or a " light touch " approach. the key purpose of supervision – to ensure that banks remain safe and sound – will not change. but supervision will become more effective. this is more relevant than ever in the fast - evolving environment that we live in. as the risk environment evolves, supervision is evolving, too. all of this will, ultimately, benefit growth and financial stability in europe