ECB wants mandatory climate transition plans for banks

October 25, 2021|Written by David Clarke|Bank of England, European Central Bank

Eurozone banks should be legally required to outline how they will align their businesses with the EU’s objectives on decarbonisation, European Central Bank (ECB) board member Frank Elderson said last week.

He called on legislators to “make explicit” the need for transition plans compatible with the EU’s policies implementing the Paris climate agreement, including concrete milestones between now and 2050. Speaking at a conference organised by Austria’s financial regulator, he said this would be a capstone to the legislative and private sector initiatives already being put in place.

His remarks follow a commitment by the UK government to require certain large companies to publish net-zero transition plans, or to provide an explanation if they have not done so. The UK’s move will be consulted on next year, and the government hopes to extend the requirement to companies more broadly once a clear set of standards for such plans has emerged.

Elderson highlighted the moves on finance sector transition plans that are currently in progress. The Glasgow Financial Alliance for Net Zero (Gfanz), established by Mark Carney in his role as Cop26 finance adviser, brings together 53 banks from 27 countries and represents almost a quarter of global banking assets.

As part of the initiative, banks are committed to aligning their business practices to net zero by 2050, setting intermediate targets for 2030 or sooner, and committing to subsequent five-year decarbonisation plans along with annual progress reports.

But the group has faced criticism over its membership criteria, with climate groups accusing Gfanz of being too lax and granting membership to some of the world’s top backers of fossil fuels. A letter sent to Carney from 90 NGOs last month said that for the plans to be credible, banks must cease financing new fossil fuel projects or fossil-fuel linked companies.

Elderson said the ECB would focus less on banks’ long-term commitments, and more on the intermediate milestones in their plans.

“Some banks that declare carbon neutrality by 2050 have no strategy in place to reduce their exposures to carbon-intensive industries by 2030, nor have they made any progress in assessing their role in financing the transition of such companies,” he warned.

The disclosure of net-zero transition plans is expected to feature in new sustainability reporting standards currently being developed in conjunction with the European Commission by the European Financial Reporting Advisory Group. The EC’s proposed Corporate Sustainability Reporting Directive envisages that the first set of these standards will be adopted in October 2022.

This page was last updated October 26, 2021

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