In a keynote speech at an ECB industry dialogue, ECB Executive Board member and Supervisory Board Vice-Chair Frank Elderson set out how ECB Banking Supervision will take climate and nature-related (C&N) risks forward, arguing they remain a material prudential issue and will continue to feature in supervisory priorities. He said supervision is nearing the end of the multi-year programme launched in 2020 and will shift from a foundational phase to a business-as-usual approach, embedding C&N risks in regular supervisory tools and follow-up. The speech noted that banks under ECB supervision now generally have the governance and risk management “architecture” in place, including climate key risk indicators and integration of climate risk into stress-testing frameworks, with most banks also starting to quantify some capital needs. Remaining shortcomings include inconsistent application of sound practices across portfolios, geographies and risk categories, uneven coverage of physical versus transition risks, and comparatively limited attention to channels such as operational and market risk. Elderson highlighted mortgage lending as an area where some banks still neglect physical risks in collateral valuation or fail to link indicators to concrete risk management actions, and warned that excluding too many firms from the Corporate Sustainability Reporting Directive (CSRD) could reduce the availability of reliable and comparable data needed for effective risk management. Looking ahead, Joint Supervisory Teams will monitor each bank and pursue remediation of outstanding findings, while C&N risks will be reflected in activities such as on-site inspections, fit and proper assessments, provisioning analysis and stress test scenarios. Elderson said banks are well positioned to meet prudential transition planning requirements coming into effect in 2026 and that the ECB will take a gradual, targeted approach in dialogue with the industry, focusing on new C&N elements in the European Banking Authority’s ESG risk management guidelines. He also said the ECB aims to publish an updated set of “good practices” later this year, including additional examples on nature-related risks, while stressing that these practices are not new requirements and are not a prerequisite for compliance with the EBA guidelines.
European Central Bank 2025-10-01
European Central Bank outlines business-as-usual climate and nature risk supervision and gradual approach to 2026 transition planning
In a keynote speech, ECB Executive Board member Frank Elderson discussed integrating climate and nature-related risks into ECB Banking Supervision's regular tools, moving to a business-as-usual approach. He noted banks have governance frameworks but highlighted inconsistencies in applying practices and addressing risks. Elderson emphasized ongoing monitoring, focusing on new elements in the European Banking Authority’s ESG risk management guidelines and plans to publish updated "good practices" later this year.