It is no longer just climate activists who are sounding the alarm. Financial authorities are now urging banks to review their lending policies, taking global warming more into account. The European Central Bank (ECB), the supervisor of the largest financial institutions in the euro area, thus published, on September 22, the final results of its very first stress test climate applied to the European economy as a whole, and to banks in particular.
His conclusions? Banking institutions in the euro area “Could be seriously affected by a scenario in which climate change is not taken into account”. Expected losses on business loan portfolios would increase dramatically over time, due to increased natural disasters, and “Could become critical over the next thirty years”. The Frankfurt institution concludes that “Climate change therefore represents a major source of systemic risk”, that is to say a potential collapse of the financial system, by contagion effect, if a major banking player were to default.
As early as 2015, the Governor of the Bank of England warned that the move towards a low carbon economy could transform “carbon intensive” financial assets into “stranded assets”
Global warming poses two types of danger to the economy and to banks: the first is physical, linked to the increase in the frequency and extent of natural disasters; the second, qualified as “transition risk”, would result from coercive policies to reduce CO emissions2. If governments really tighten regulations, high-emitting industries will be greatly weakened, increasing the danger of default on loans granted by banks.
A more visionary regulator than its peers had warned the world of finance in 2015. In a speech that became famous, Mark Carney, then governor of the Bank of England, called climate change a “Horizon tragedy”, and warned that the move towards a low carbon economy could transform financial assets “Carbon intensive” in “Stranded assets”.
French banks claim to have made progress
A study, published in June 2021 by the Rousseau Institute and the NGOs Reclaim Finance and Les Amis de la Terre, sought to measure the potential impact, by quantifying the “fossil assets” present on the balance sheets of the eleven main banks in the area. euro, that is to say the financial products contributing to the financing of the activities of exploration, exploitation or distribution of oil, gas and coal. The authors of the report come to the alarming conclusion that these institutions “Accumulate a stock of more than 530 billion euros of assets linked to fossil fuels”, or the equivalent of “95% of their total equity” – the volume of capital held by banks.
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