Frank Elderson: All the way to zero - guiding banks towards a carbon-neutral Europe Keynote speech by Mr Frank Elderson, Vice-Chair of the Supervisory Board and Member of the Executive Board of the European Central Bank, at the conference on “The Role of Banks in Greening our Economies” organized by the European Bank for Reconstruction and Development and Hrvatska narodna banka, Frankfurt am Main, 29 April 2021. * * * It is a great honour for me to be with you today to discuss the role of banks in greening the economy. And I am very happy to delve into the topic of climate change at an event co-organised by the European Bank for Reconstruction and Development (EBRD) – an institution whose own work remarkably exemplifies what international cooperation can achieve in supporting the greening of the economy. Your commitment to meeting the goals set under the Paris Agreement is outstanding. It offers great inspiration to all of us in European institutions who are just as adamant about doing the same. As many of you know, climate change considerations feature prominently in the ECB’s ongoing monetary policy strategy review. But today I will focus on how they will be taken into account by ECB Banking Supervision. The challenge of climate change is daunting. This is certainly true for the consequences if climate change continues unabated, such as increased natural disasters and the loss of habitats and biodiversity. And it is also true for the transformation necessary to avoid these dire consequences.
In stress test parlance: this year’s test is “topdown”, whereas next year’s is “bottom-up”. As banks become better prepared to face the risks posed by climate change, they need to be led by people who are also better prepared to deal with these topics. When assessing the suitability of prospective members of the management body of banks, knowledge and experience of climate-related and environmental risks will be among the areas of general banking experience against which suitability will be assessed. Finally, we will seek to include an understanding of climate-related and environmental risks as a specific area of expertise within the collective suitability of a bank board. An environmental risk that is intimately connected to climate change, but also constitutes a risk in itself, is the loss of biodiversity. In our Guide on climate-related and environmental risks we single out biodiversity loss as one of the drivers of both physical and transition risk. It is becoming ever clearer that beyond climate-related risks, biodiversity loss could also be a source of material financial risks.9 More research needs to be done.10 At the ECB, we will follow these developments closely – and we encourage banks to do the same. Integrating international networks and European initiatives Much like the EBRD, the ECB is also part of global initiatives which promote international cooperation on joint solutions for climate change. Most prominently, the ECB is a member of the NGFS.