Publications

The President of the European Commission, Ursula von der Leyen, has committed to presenting a European Climate Adaptation Plan in 2026. The European Commission has previously emphasised public budgets as the main source of coverage for climate-related disasters. But if both the EU’s and member states’ budgets are strained by competing investment priorities and high debt levels in some cases, what are the complementary avenues for financing adaptation in the EU? How can private financial actors, such as banks, insurance companies or asset management firms, support adaptation efforts, not only to ensure resilience (i.e. recovery) from climate disasters, but also to prevent impacts before they arrive?

Premier état des lieux et pistes sur les banques, assureurs, gestionnaires d’actifs Un besoin de clarifier le rôle des banques, assureurs dommage et gestionnaires d’actifs dans l’adaptation de l’immobilier. Alors que les effets du changement climatique sont de plus en plus manifestes, les parties prenantes de l’immobilier doivent se préparer aux conséquences du réchauffement climatique qui pourrait atteindre, d’ici la fin du siècle en France, +4°C.

In the face of geopolitical shifts, not least those driven by the second Trump administration, the EU needs to secure its own green industrial base and foster new alliances. The European Commission’ proposal for a Clean Industrial Deal, central to its new competitiveness agenda, needs to spell out how Europe will create the enabling conditions […]

While several North American banks exit the voluntary NZBA (Net Zero Banking Alliance), European banks must bolster their climate risk frameworks. The European Banking Authority’s (EBA) recently published guidelines on ESG risk management offer a beacon of hope amidst the turmoil that currently surrounds the EU’s sustainable finance regulations. These guidelines are encouraging in both substance and form, reflecting prudential supervisors’ commitment to aligning the banking sector with the bloc’s climate and sustainability goals.

As the European economy decarbonizes, economic assets across sectors are at risk of stranding or repricing from transition pressures. Yet private financial institutions, particularly banks, often narrowly focus on fossil fuel credit losses using historical data, underestimating broader ‘whole of economy’ stranding risks. Risk mitigation in the form of prudential capital buffers and loss provisions […]

The implementation of the new banking package (or Capital Requirements Directive package) that adopts the final parts of the international Basel 3 financial regulation is underway in the European Union. The European Banking Authority (EBA) along with the other European Supervisory Authorities (ESAs) is mandated to develop technical standards that provide the framework to help financial institutions comply with the new regulatory rules. Key among these standards is the novel guidance on ESG risks which is expected to be finalised by the EBA in the coming months. This is an opportune moment to address weaknesses in banks’ risk management practices, particularly regarding the underestimation of stranded asset risks, a missing angle in current policy debates.  

Following the European elections on June 9, the EU is adapting to a new, more conservative, political reality. Yet despite changing political tides, a new EU leadership will still need to find a credible answer to how the continent is to reach climate neutrality by 2050. To understand how to get there, we need a clear understanding of the progress already made. This is where the European Climate Neutrality Observatory (ECNO) comes in.

Private financial institutions must rethink their approach to managing stranded asset risks. The current narrative on quantifying fossil fuel sector exposures within a limited scope of financial portfolios (mostly loans) largely underestimates potential stranding losses. As the low-carbon transition impacts all economic sectors, private financial institutions (FIs) must consider material transition-driven stranding risks within their overall transition risk management framework using a ‘whole of economy’ lens. Traditional risk management approaches are ill-suited to the methodological and quantification challenges of transition-driven stranding risks, so a flexible, dynamic, forward-looking approach is necessary. Strong, incentivising public policy coordinated with financial regulatory and supervisory impetus is necessary to preemptively identify, monitor and manage stranding losses on ‘assets-at-risk’ (i.e., potential stranded assets). The ECB finds that 40% of the total loan portfolio of euro area banks is exposed to energy-intensive sectors*, making them vulnerable to transition risks, including stranding. It is time for an urgent reframing of the stranded asset narrative to avoid significant financial losses (endangering financial stability) and direct orderly transition finance flows to retire or transform assets-at-risk before they become fully stranded.

The European Banking Authority (EBA) is clarifying how the banks should frame their “transition plan” as required by the EU prudential regulation. The transition plan is the bank’s strategic roadmap to prepare for the transition to a sustainable economy as framed by the jurisdictions they operate in, including an EU climate-neutral economy. It has been introduced in several EU regulatory frameworks, including as a disclosure requirement arising from the CSRD. The prudential framework and the EBA are focusing on a specific angle: how the banks plan to manage their financial risks related to the transition. EBA’s framing of these plans will be key to determine whether the banks will manage their financial risks consistently with the broader need of financing the transition to a low-carbon economy. 

After a first step in 2022, the Basel Committee on Banking supervision is finally moving towards regulation for climate-related risks. Founded in 1974, this forum brings together financial supervisors of the G20 countries and establishes the common standards for financial stability. Two years ago, the Committee published a consultative document on the principles of climate […]

The European Union is continuing its efforts to ensure that the banking system takes climate change into account. Banks will have to draw up a "transition plan", according to the European Banking Authority’s (EBA) guidelines that are out for consultation until April.  One could hope that the banking authorities would seize this opportunity to encourage banks to better finance the transition, since their voluntary commitments are not sufficient. But the EBA does not make it a clear objective.

A report to clarify linkages between these two approaches to climate action for the financial sector. The mobilization of the sector is necessary to help to finance the low-carbon transition. Some stakeholders thus advocate the explicit mobilization of the sector in favor of financing the transition. This rationale for action is known as the “transition finance approach”. The sector is also exposed to the financial risks arising from climate change and the necessary transition. This observation motivates a rationale for action known as te “risk approach”, aimed at managing the exposure of financial institutions to such risks.

After nearly 4 years of negotiations, the European Union has just reached an agreement to reform the Capital Requirements Directive (CRD) for banks. The inclusion of climate change is a major step forward: banks will have to draw up prudential transition plans, supervised by the European Central Bank. These plans will complement the European regulatory architecture that is being put in place for large companies, with the Sustainability Reporting Directive (CSRD) and the Due Diligences Directive (CSDD). Are these banking transition plans a sufficient breakthrough to finally commit banks to climate neutrality? The answer to this question will depend on the implementation of EU legislation.

The European Union has just adopted the Capital Requirements Directive (CRD) and introduced a new feature: transition plans will now integrate prudential regulations. This paper looks at the major opportunity represented by prudential transition plans and the decisive role that the European Banking Authority will play. It explains why the Authority should adopt a comprehensive definition of banking transition plans and how these plans should be consistent with the European directives on Corporate Sustainability Reporting (CSRD) and on Due Diligences (CSDDD).

There is a broad consensus that private finance has an important role to play in financing the climate transition, given the scale of needs and the constraints on public finances. Beyond investments in climate alone, all financial activities must be reoriented to be compatible with the transition. This shift cannot take place on a voluntary basis at the scale and speed required. The inactivity of financial players, the weight of past financing, and the demands of shareholder profitability limit the effectiveness of voluntary international initiatives to which private financial players commit themselves.

The net-zero transition, i.e. the transformation towards a carbon-neutral and resilient economy, is a major and urgent challenge for reducing the effects of climate change. This transformation requires the transition and adaptation of all activities and all economic agents. It is first and foremost a matter for the real economy and must be based on an operational roadmap of actions to be taken. This must be defined by an ambitious economic policy (budgetary, fiscal, monetary, regulation of products and sectors, etc.).

Residential real estate in France is a key target for transition policies, and a the sector is highly exposed to climate risks. With While housing home loans accounting for almost 85% of outstanding household loans in France, it is legitimate to ask how climate risks are passed on from the real estate sector to banks. This article, written with the Banque de France, explores investigates the exposure of residential real estate to present and future climate risks - present and future - and as well as their transmission to bank the lending activities of the banking sector.

Elections of the European Parliament are coming up in June 2024 and will be followed by the renewal of the Commission. Hence, there are only a few months left to finalize the implementation of the renewed sustainable finance strategy adopted in 2021. This strategy aims, among other things, to increase the contribution of the financial sector to sustainability. It seems too early to already draw conclusions on how the Commission delivered on its objectives as some key legislative and supervisory processes are still under way. This newsletter focusses on some of these ongoing processes that receive quite some attention in the public debate

Since their introduction, climate stress tests have taken a lot of space in the public debate. Put in the spotlight by supervisors and the NGFS, their primary objective is to encourage banks to integrate climate-related risks into their activities and to carry out an initial assessment of the banks' capacity to deal with these risks.

Negotiations are under way on the Corporate Sustainability Due Diligence Directive, commonly known as the "CSDDD". Regarding climate, an obligation of climate transition plan for companies is discussed. But let’s keep careful on this point. Europe is in the process of developing climate transition plan requirements in two other directives on corporate sustainability reporting (CSRD) and on prudential requirements for banks (CRD). We must therefore ensure that the discussions result in a final version of the CSDDD that is consistent with these other texts and at the same time complementary.