“White noise and no real substance”: the ECB’s assessment of banks’ climate-related and environmental disclosures
The European Central Bank (ECB) recently published a report on its supervisory assessment of institutions’ climate-related and environmental risks disclosures. The report is based on a review of 109 directly supervised banks’ public disclosures and was published alongside a speech given on 14 March 2022 by Frank Elderson (Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB) on the ECB’s supervisory approach to climate-related and environmental risks.
The ECB expressed disappointment that only marginal progress has been made in banks’ disclosures of the climate and environmental risks they face. The report highlights areas for improvement and examples of good practice.
The ECB notes a significant “disconnect” between banks’ perception of the importance of these risks (as communicated to the ECB as supervisor) and what banks disclose to the public. The ECB’s view is that such a disconnect is unacceptable and does not bode well for banks’ levels of preparedness for complying with incoming technical disclosure requirements.
Actions and Next Steps
The ECB sent individual feedback letters to all banks under its direct supervision detailing the gaps in disclosures. The ECB expects that banks will take decisive action to address these gaps and so ensure comprehensive disclosures of their risk profiles.
The ECB intends to review banks’ disclosures again at the end of the year and notes that close supervision of climate-related and environmental disclosures will be a key feature of the ECB’s supervisory agenda (with the ECB ready to use its full array of supervisory tools to ensure that the disclosures meet expected standards).
“Banks are trying to compensate for the poor quality of their disclosures by issuing a great volume of information around green topics. We end up with a lot of white noise and no real substance on what both markets and supervisors really want to know: how exposed is a bank to C&E risks and what is it doing to manage that exposure?”