← Back to updates
ECB

ECB

High Impact

ECB final guide on climate-related and environmental risks sets supervisory expectations for risk management and disclosure

Published

Jul 2, 2026

Effective

Nov 27, 2020

Topics

Climate risk, Environmental risk, ESG, Prudential supervision, Risk management, Governance, ICAAP, Credit risk, Operational risk, Market risk, Liquidity risk, Stress testing, Pillar 3 disclosures

Executive Summary

The ECB guide establishes a detailed supervisory benchmark for euro area banks’ management and disclosure of climate-related and environmental risks. Although the guide states that it is not binding and does not replace applicable law, the ECB will use it in supervisory dialogue with significant institutions directly supervised by the ECB. Significant institutions are expected to assess whether their existing practices are sound, effective and comprehensive against the guide, promptly enhance practices where needed, and from early 2021 explain to Joint Supervisory Teams any divergences and planned arrangements to address them. The guide treats climate-related and environmental risks as drivers of existing prudential risk categories, including credit, operational, market, liquidity, business model, strategic and reputational risk. Business impact is broad: banks should update governance, risk appetite, internal reporting, ICAAP, credit underwriting, collateral valuation, portfolio monitoring, stress testing, business continuity, market risk monitoring, liquidity risk management and external risk disclosures.

What Changed

newECB supervisory expectations for climate-related and environmental risks

Previous

Climate-related and environmental risks were addressed through the general prudential framework, including CRD governance and ICAAP requirements and CRR disclosure requirements, but the source indicates that this guide was issued to provide greater transparency on the ECB’s understanding of sound, effective and comprehensive management and disclosure of these risks.

New

Significant institutions are expected to use the guide, taking into account the materiality of their exposure to climate-related and environmental risks, and to consider these risks as drivers of existing risk categories when setting strategy, governance, risk management and disclosure practices.

newImmediate application and supervisory dialogue

Previous

No ECB supervisory dialogue timetable is specified in the general CRD/CRR provisions cited in the guide.

New

The guide is applicable as of 27 November 2020, with JST supervisory follow-up starting from early 2021.

newBusiness model and strategy integration

Previous

Business strategy obligations under the general prudential framework required institutions to consider material factors affecting long-term financial interests and solvency, but without this guide’s detailed climate and environmental risk expectations.

New

Banks should assess climate and environmental impacts by sector, geography, product and service, document these assessments, and reflect relevant risks in strategy, KPIs, business-line objectives and policies.

newGovernance, accountability and risk appetite expectations

Previous

CRD Article 74 required robust governance and risk management arrangements, while Article 76 required management body review of risk strategies and policies; the guide adds specific expectations for climate-related and environmental risk roles, skills, oversight, RAF metrics and limits.

New

Banks should define climate/environmental risk responsibilities, include these risks in risk inventories and risk appetite statements, develop KRIs and limits where appropriate, and align remuneration policies and practices with climate-related and environmental risk approaches where relevant.

newRisk management, ICAAP and stress testing integration

Previous

ICAAP and risk management requirements required assessment of material risks and adequate internal capital, but the guide specifies how climate-related and environmental risk drivers should be identified, mapped, quantified and reviewed.

New

Banks with material exposures should document transmission channels, include risks in materiality assessments, quantify risks or use plausible assumptions/proxies where data are incomplete, and reflect relevant risks in baseline and adverse scenarios under economic and normative ICAAP perspectives.

newDisclosure expectation

Previous

CRR Part Eight required formal disclosure policies and assessment of whether disclosures comprehensively convey the institution’s risk profile; the guide adds climate-related and environmental disclosure expectations.

New

Institutions should enhance public disclosures, including disclosure policies, procedures, definitions, methodologies and material climate-related and environmental risk metrics where relevant.

Business Impact

Who is affected

Significant institutions directly supervised by the ECB are the primary affected population. National competent authorities are recommended to apply the expectations proportionately to less significant institutions, and less significant institutions are invited to consider relevant NCA guidance. Banking groups with EU operations should also assess local NCA expectations and group-level consistency.

Jurisdictions

Euro area, European Union

Business processes

Business environment scanning and strategic planning, Management body governance and committee oversight, Risk appetite framework and risk inventory maintenance, Three-lines-of-defence responsibility mapping, Internal risk reporting and risk data aggregation, ICAAP materiality assessment and capital adequacy assessment, Credit origination, renewal, refinancing and borrower due diligence, Collateral valuation and collateral monitoring, Sector, geography and single-name concentration monitoring, Loan pricing and profitability steering, Operational risk, outsourcing and business continuity management, Reputational, liability and litigation risk monitoring, Market risk monitoring and stress testing, Liquidity risk management and liquidity buffer calibration, Regulatory and public risk disclosures

Estimated effort

High

Compliance risk

High

Affected Reports

ICAAP risk inventory, materiality assessment and capital adequacy documentationRisk appetite statement and associated limit/KRI reportingManagement body and risk committee climate-related and environmental risk reportingCredit risk underwriting, approval, monitoring and portfolio concentration reportsCollateral valuation review process for real estate and other climate-sensitive collateralOperational risk and business continuity risk assessmentsMarket risk stress testing and sensitivity analysis packsLiquidity risk management and liquidity buffer calibration assessmentsRegulatory/public climate-related and environmental risk disclosure procedures
FieldValidation rule
Risk taxonomy classificationClimate-related and environmental risks should be clearly defined in the institution’s internal risk taxonomy and risk inventory as drivers of existing risk categories.
Materiality assessment rationaleInstitutions should document climate-related and environmental risks considered, transmission channels, impact on the risk profile, and any qualitative and quantitative basis for non-materiality conclusions.
Risk appetite metrics and limitsInstitutions are expected to develop appropriate key risk indicators and limits for managing material climate-related and environmental risks, including physical and transition risks where relevant.
Business strategy KPIsInstitutions may use measurable and quantifiable KPIs, cascaded to business lines and portfolios where relevant, to reflect climate-related and environmental risks in strategy implementation.
Borrower climate/environmental risk assessmentCredit risk processes should identify and assess climate-related and environmental factors material to borrower default risk and may consider the borrower’s own management of these risks.
Sector and geography exposure indicatorsInstitutions are expected to monitor and manage sectoral, geographic and single-name concentrations that are prone to climate-related and environmental risks.
Collateral physical-location and energy-efficiency attributesCollateral valuation and review processes should consider climate-related and environmental risk impacts, including physical location and energy efficiency for commercial and residential real estate.
Scenario assumptionsStress testing and scenario analysis for material risks should consider physical risk, transition risk, short-, medium- and long-term horizons, and scenarios consistent with scientific climate change pathways where relevant.
Disclosure metrics, definitions and methodologiesRegulatory disclosures should include meaningful information and key metrics on material climate-related and environmental risks and should be supported by disclosure policies and procedures.

Recommended Actions

  1. 1

    Perform a board-approved gap assessment against the 13 ECB expectations, documenting current practice, divergences, materiality conclusions, remediation owners and target dates.

  2. 2

    Update the risk taxonomy and ICAAP methodology to treat climate-related and environmental risks as drivers of existing risk categories, including credit, operational, market, liquidity, strategic, reputational and other material risks.

  3. 3

    Enhance data governance by identifying required climate and environmental data, available internal and external sources, data gaps, limitations, controls and a phased remediation plan.

  4. 4

    Revise the risk appetite framework to include qualitative statements, quantitative KRIs and limits for material physical and transition risk exposures, with escalation and breach-management procedures.

  5. 5

    Update credit policies to require borrower-level climate and environmental due diligence at onboarding and review, with sector/geography risk indicators, collateral considerations and portfolio concentration monitoring.

  6. 6

    Integrate climate-related and environmental factors into collateral valuation processes, especially for real estate exposures where physical location and energy efficiency are relevant.

  7. 7

    Develop scenario analysis and stress testing capabilities that assess physical and transition risk impacts over short-, medium- and long-term horizons and feed results into ICAAP, strategy and risk appetite decisions.

  8. 8

    Review outsourcing, operational resilience and business continuity arrangements for vulnerability to physical climate and environmental events, including critical or important outsourced services.

  9. 9

    Assess whether market risk, credit spread risk and liquidity risk frameworks adequately capture climate and environmental drivers, including potential repricing of securities, asset stranding and liquidity buffer impacts.

  10. 10

    Strengthen management body reporting with periodic dashboards showing material exposures, data limitations, KPIs/KRIs, limit utilisation, stress test outputs, remediation progress and disclosure readiness.

  11. 11

    Review public disclosure governance to ensure climate-related and environmental risk disclosures are meaningful, supported by approved definitions and methodologies, and aligned with applicable EU and ECB expectations.

Timeline

publication

May 20, 2020

ECB launched a public consultation on its draft guide on climate-related and environmental risks.

consultation deadline

Sep 25, 2020

ECB public consultation period on the draft guide closed.

publication

Nov 27, 2020

ECB published the final guide on climate-related and environmental risks.

effective date

Nov 27, 2020

Guide became applicable as of its publication date.

implementation

Jan 1, 2021

From early 2021, Joint Supervisory Teams were to ask significant institutions to inform the ECB of divergences from the expectations and arrangements to address them.

implementation

Jun 30, 2021

EBA Guidelines on loan origination and monitoring, cited by the ECB guide for climate-related and environmentally sustainable lending and credit risk processes, applied from this date.

Sources

AI-generated analysis is based on the following primary sources. Always verify against the official publication.

Related Evidence

Similar official source documents found with semantic search.

Receive updates like this by email

Get AI-generated analysis for the regulators and topics you care about.