The EBA publishes key indicators on climate risk in the EU/EEA banking sector

The European Banking Authority (EBA) today released an ESG dashboard that establishes a broader ESG risks monitoring framework and allows centralised access to comparable climate risk indicators. This dashboard provides benchmarks and enhances the assessment and monitoring of transition and physical climate-related risk across the EU/EEA banking sector. It is based on the information disclosed by banks as part of their Pillar 3 ESG disclosures.

This dashboard covers climate risk, both from a transition and a physical perspective. The indicators show the spectrum of green financing, based on the alignment with the EU Taxonomy, as well as beyond the Taxonomy criteria, considering internal definitions of green finance used by institutions.

The data show a substantial exposure (above 70% in most countries) of the EU/EEA banks to corporates from sectors highly contributing to climate change. This may imply a significant exposure to climate-related transition risk, especially if companies are affected by policy measures related to sustainability objectives, if a need to invest in technological change arises, or are affected by changing consumer preferences. Companies active in these sectors may of course be affected by these risks to a different extent and the aggregate data cannot recognise individual differences or transition measures already taken.

Indicators related to physical risk show an average share of exposures in areas subject to elevated physical risk below 30% in most countries. However, the granularity at which data is disclosed in different geographical locations, as well as the assessment methodologies vary across institutions. The indicators are built on data disclosed by institutions presenting their own assessment of the exposures and geographical areas exposed to this type of risk.

The dashboard also includes specific indicators for exposures secured by immovable property collateral, showing that approximately half of the EU real estate lending is classified in the first two buckets of energy efficiency, lower than 200 kWh/m2 of collateral. This may indicate relatively limited transition risk related to immovable property collateral. However, banks report that they largely rely on proxies and estimates with regard to energy efficiency data, hence the need to interpret this data with caution.

Finally, the tool provides indicators related to EU/EEA banks’ alignment with the EU Taxonomy and beyond. While the Green Asset Ratio (GAR) remains low, slightly below 3% on average, there is noticeable dispersion across EU/EEA banks and countries. The currently low level of the indicator owes to the structure of the indicator itself. The computed loan GAR, which aligns the numerator and the denominator of the indicator, displays higher levels. The low level of the indicator is also due to the fact that the economy is still under transition, with at this stage few activities being able to demonstrate alignment with the Taxonomy criteria. To facilitate the interpretation, the GAR figures are accompanied by further indicators, offering a more detailed focus on lending to specific types of counterparties, presenting the scope of exposures that are eligible to be assessed against the Taxonomy criteria, and the extent of green lending based on other criteria than the EU Taxonomy.

Legal basis, background and next steps

The development of the ESG risk monitoring framework supports the Commission’s objective to systemically monitor climate-related financial stability risks. The ESG risk indicators have been developed in accordance with Article 29(f) of the EBA founding regulation (Regulation EU 1093/201), requiring the EBA to put in place a monitoring system to assess environmental, social and governance-related risks taking into account the Paris Agreement to the United Nations Framework Convention on Climate Change.

The indicators are built based on Pillar 3 ESG data disclosed by banks with reference dates of 31 December 2023 and 30 June 2024.

The EBA intends to regularly update and evolve the indicators over time. Given that the Pillar 3 disclosure templates are presently under revision, the charts and indicators may be adjusted in future updated versions. This relates in particular to the Taxonomy alignment indicators (any changes to the GAR in the relevant regulations would be reflected in future updates of the ESG risks monitoring tool).