EU lawmakers to vote on one-for-one climate capital measures

January 23, 2023|Written by David Clarke|European Central Bank

The European Parliament’s economic affairs committee is due to vote on a proposal to require banks to hold additional capital against lending towards the instigation or expansion of fossil fuel projects.

Other measures up for consideration in the much-anticipated session tomorrow include policies to link banks’ capital requirements with their environmental transition plans, and aligning banks’ remuneration policies with delivery of their climate commitments.

The most high-profile amendment involves introducing a 1250% credit risk weight for new fossil-fuel exploration and expansion projects. This one-for-one capital rule means that such exposures would be financed entirely out of banks’ own funds, with the institution bearing all of the risk associated with them.

Organisations including Finance Watch, ShareAction and WWF wrote to MEPs on the committee last week, urging them to take “credible action” to tackle climate-related financial risks. They argued that no European bank with sound risk management practices should consider providing finance towards new fossil fuel reserves.

“It would provide a safety net against any potential reckless risk-takers, who are willing to disregard EU climate commitments and a huge level of transition and physical risk,” said the letter.

Although the one-for-one amendment is not understood to be among those adopted in a compromise package agreed by representatives of different political groupings on the committee, sources with knowledge of the behind-the-scenes deliberations told Green Central Banking they were optimistic that a vote will still take place.

The law being voted on involves implementing some outstanding elements of Basel III, a global agreement that forces banks to hold more capital to cope with market shocks and removes the need for taxpayer bailouts.

After this week’s vote the amended legislation will go to the full plenary of the European Parliament, where a bid to incorporate the one-for-one rule is likely to be made again if it has not been adopted by the committee. EU member states will then negotiate a final deal which will come into effect in 2025.

This page was last updated January 23, 2023

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