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Money News

ECB gives banks a year to get real on climate risk

FILE PHOTO: The European Central Bank logo. Frankfurt, Germany, January 23, 2020. REUTERS/Ralph Orlowski/File Photo

FRANKFURT (Reuters) - The European Central Bank said on Wednesday it would start dissecting euro zone banks’ exposure to climate change in 2022 and set its capital requirements accordingly.

Banks will, for example, be told to factor in risks to their shares in carbon-intensive companies and to their property in locations that are prone to extreme weather or other environmental hazards, according to a guide produced by the ECB earlier this year.

ECB supervisors will start discussions with lenders early next year but do not plan to translate those into capital demands for another year as banks need time to collect data and change their practices.

“Supervisory follow-up actions (in 2021) cannot be ruled out in certain individual cases,” the ECB said in its supervision newsletter. “As of 2022, however, the ECB will start conducting in-depth supervisory assessments of bank’ practice.”

The ECB has made supporting the fight against climate change a priority under President Christine Lagarde, and its supervisory arm, led by Andrea Enria, has also includes that in its work.

Reporting By Francesco Canepa; Editing by Kirsten Donovan

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