Daily Management Review

ECB President Singles Out Banks For Their Failure Towards Climate Risk Disclosure


ECB needs to get a better understanding of climate change impact and its affect on the economy to find ways of playing its role.

Source: http://en.kremlin.ru/
Source: http://en.kremlin.ru/
The President of European Central Bank, Christine Lagarde stated that banks need to up their game towards transparency on “their exposure to climate- change risk” while central banks will need to look more carefully given the risk hovering over the “entire financial sector”.
According to Lagarde the battle against the climate change is “mission-critical” as last month, she wrote an “overarching review” of policy-framework at the ECB, wherein she found that the bank will have to “find ways” of playing its role even if it means to ensure “price stability”.In Lagarde’s words:
“Insurance and economic losses caused by climate-related events are likely to start trending upwards as a share of GDP. Central banks need to devote greater attention to understanding the impact of climate change.”
ECB’s former President Mario Draghi left his post in November 2019 when Lagarde took the reins, while the latterclaimed that disclosing about “climate exposure” is a “prerequisite” for any companies to take part in the market, while the responsibility lay with the banks to carry out “appropriate risk assessment”.
Furthermore, she also mentioned the banks that failed to do so and stated that their “climate-related disclosures” still needed to be worked on. She said:
“The (ECB) is now reviewing the extent to which climate-related risks are understood and priced by the market and is paying close attention to how credit-rating agencies incorporate such risks into their assessments of creditworthiness”.
“Preparatory work is also under way for a macroprudential stress test to assess climate-related risks, with the first results expected by the end of the year”.
Moreover, Lagarde thinks that financial firms will not only deal with “disclosure and risk assessment” but they will also have a key role to play in transforming the economy through lending.