16 November 2020
Greening Banks in the Face of Uncertainty
To this day, banks continue to plough money into carbon-intensive sectors of the economy while making inadequate provisions for potential losses. The European Central Bank’s 2020 draft Guide on climate-related and environmental risks is a major step in supervisory efforts to address this problem, which so far has escaped critical scrutiny. It sets out how the ECB will use its supervisory powers to get banks to properly monitor, disclose and price risk. As we argue, its current approach is unlikely to work because it asks banks to quantify risks that often resist simple quantification. Instead, the ECB should provide banks with more targeted guidance. That will make banking supervision more political than it is today. Continue reading >>
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