SocGen, UniCredit Among Top Performers in ECB’s Climate Review

By BLOOMBERG

Societe Generale SA and UniCredit SpA are among lenders that currently come closest to meeting the European Central Bank’s expectations for how the industry should deal with climate risk, according to people familiar with the matter. 

The ranking, which also places BBVA SA in the top group, offers a snapshot of how banks are adapting to climate change here and now, and doesn’t necessarily serve as a verdict on how they plan to develop their risk management, the people said asking not to be identified discussing private information. The ECB hasn’t published results on individual banks, but has previously criticized the industry for falling short overall. 

The high scores handed to SocGen, UniCredit and BBVA follow a review conducted by the ECB earlier this year that took into account the qualitative measures banks are employing to assess and steer climate risk. It comes ahead of a much more thorough climate stress test that the ECB is due to carry out next year, which will look into the carbon intensity of banks’ loan books and trading operations. 

Representatives for the ECB and BBVA declined to comment. Spokespeople for Societe Generale and UniCredit couldn’t immediately be reached for comment. 

More Ambitious

Banks that perform badly in next year’s climate stress test may face higher capital requirements, which would erode their ability to hand profits back to shareholders. The tougher regulatory environment comes amid increasingly dire warnings that the world is woefully behind in cutting carbon emissions, adding to pressure on governments and businesses to deliver more ambitious climate plans.

Banks with balance sheets bigger than 100 billion euros ($116 billion) will generally be required to project the carbon intensity of their loan portfolios as far as 30 years into the future, though there may be exemptions, the people said. That exercise is likely to be one of the most demanding elements of the stress test.

The ECB intends to follow up with banks that performed poorly in this year’s review, which covered 24 trillion euros of assets. Though the exercise showed that some banks have passable risk procedures, the ECB has made clear it wants the industry as a whole to make a much more serious effort to prepare for the fallout from climate change.