Report
Finance Watch supports the European Banking Authority proposal to improve the use of sectoral systemic risk buffers by facilitating the identification of climate risk exposures. More granular climate metrics, a precautionary and science-based implementation, and a stronger EU-wide coordination are necessary to address both transition and physical climate risks in the banking sector.
The possibility of using a Systemic Risk Buffer (SyRB) to mitigate and prevent systemic risks arising from climate change is explicitly stated in Article 133 of Directive (EU) 2013/36. This reference has been added during the review of this directive in 2024. Following this addition to the definition of the SyRB, the European Banking Authority (EBA) has conducted a consultation to amend its Guidelines on the appropriate subsets of exposures in the application of the systemic risk buffer. This review aims to facilitate the use of sectoral SyRB for climate-related systemic risks by national competent authorities (NCAs).
The proposed changes include expanding the possible scope of targeted exposures by using more granular NACE sectors and geographical areas (NUTS 3 and LAU). Finance Watch supports this approach but emphasises the need to also incorporate additional climate metrics, such as GHG emissions, EU Taxonomy alignment metrics, and transition plans, to better distinguish exposures facing a higher transition risk. Regarding physical risk, we suggest that the EBA account for the growing insurance protection gap in its guidelines, as it will increase the vulnerability of the banking sector to physical risks.
Furthermore, we highlight that the EBA should support NCAs in relying on evidence-based climate science reports to justify and support decisions on implementing a climate-related SyRB, allowing a preventive use of SyRB to address the radical uncertainty in climate risk management. Additionally, we call for an EU-wide coordinated approach, potentially led by the European Systemic Risk Board, to ensure harmonisation and reciprocity in climate-related systemic risk management practices.
Read the response
