Banks will, for example, be expected to disclose how flooding and storms could affect the value of their real estate portfolios and customer supply chains, as well as take into account losses that could arise if businesses adjust their operations to be less carbon intensive.
“Ensuring that banks’ balance sheets also reflect climate-related and environmental risks is a prerequisite not only for the resilience of the banking sector, but also for the accurate pricing of these risks,” the ECB’s supervisory arm said in a statement on Wednesday, adding that it will begin discussions with lenders on the new approach early next year.
It’s a major sign that financial regulators are not going to leave climate supervision solely to governments — and with good reason.
With that in mind, it’s only a matter of time before America’s leading investment banks, which are much bigger fossil fuel funders than their European counterparts, are forced to get a handle on their climate exposures.
“Federal Reserve supervisors expect banks to have systems in place that appropriately identify, measure, control, and monitor all of their material risks, which for many banks are likely to extend to climate risks,” the Fed said.
More than half the syndicated loans of major US banks are in sectors of the economy that make them vulnerable to the risks posed by climate change, according to sustainability non-profit Ceres. This extends beyond loans to fossil fuel companies and includes sectors such as construction, manufacturing and agriculture.
Companies were selected based on their exposure to decarbonization risks and were urged to prepare “Paris-aligned” earnings reports that reflect what climate change means for their business.
Hard choices ahead of a very unusual Thanksgiving
Millions of Americans are preparing to hit the road ahead of Thanksgiving. That could be a double-edged sword for the economy.
The American Automobile Association said last month that it expected 50 million Americans to travel for Thanksgiving, a drop from 55 million in 2019 but still a massive number. The trade body has since said the final tally will be lower, due to rising coronavirus infections and renewed quarantine restrictions, but carriers are still gearing up for a rare spike in demand.
The bounce in travel and associated spending will bring much needed relief to the US economy. At the same time, close physical contact between far-flung family members could drive coronavirus cases even higher.
If more states impose fresh restrictions as result, any benefits from increased travel and spending during the Thanksgiving holiday could quickly evaporate.
Whatever your plans, please be safe. You can get the latest guidance from the US Centers for Disease Control and Prevention by clicking here.
Wednesday: US initial jobless claims and October new home sales
Thursday: ECB and Fed minutes; US stock markets are closed
Friday: Black Friday