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BNR: Six out of 10 banks already have an organizational structure dedicated to climate change

31 January 2024
General Interest

Six out of 10 banks already have an organizational structure dedicated to climate change and another 5% intend to develop it in the next year, according to the “Climate change survey: analysis of trends and preparation of financial institutions, 2023,” carried out by the National Bank of Romania.

“The integration of climate change into strategy documents or the approval of an independent climate strategy is a first step in concretizing the concerns related to the risks generated by this phenomenon. According to the responses to the questionnaire, the level of involvement of credit institutions is increasing compared to the evaluation carried out following the previous survey (end of 2020) First, the number of institutions that have not considered including climate change in their strategy and do not plan to do so in less than three years has decreased from around 30% in 2020 to 7% currently. In addition, more than half of the responding banks have already adopted such a document, while 16 percent said they would consider doing so in the next year and 21% in the next three years. In the case of IFN, it is similar, but the prospects for adopting a strategy are more aimed at the three-year horizon. The results of the questionnaire reveal that 60% of the banks already have an organizational structure dedicated to climate change and another 5% intend to develop it in the next year, evolution in line with the expectations formulated in the 2020 Questionnaire,” the document says.

The BNR mentions that the progress is below expectations, in the context in which the period between the two surveys was marked by a significant increase at the international level of concerns regarding the impact of climate risks on the financial system, as well as the expectations of the regulatory and supervisory authorities of incorporation of these risks in the framework of governance and risk management.

In the case of IFN, the degree of preparation is even lower, with only 18% of respondents confirming that they have an organizational structure dedicated to climate change and 32% intending to develop such a structure in the next year.

“According to the technical standards developed by the European Banking Authority (EBA) regarding the prudential requirements in relation to ESG risks, financial institutions are obliged to disclose the alignment of the remuneration policy with the objectives related to climate or environmental risk. The results of the questionnaire show that only 21% of respondents (banks and IFN) associate executive remuneration with environmental objectives or green products. Compared to the previous assessment, in 2023 the number of banks making these disclosures increased to 6 (from one bank in 2020), and a reduced number of they mentioned that in the future they will align with the EBA standards. With regard to international reporting standards, the respondents (banks and IFNs) indicated to the greatest extent that they follow the NFRD/CSRD standards. In the case of banks, 80 percent of them have answered that they use international standards, and 10% that they intend to align themselves with such standards in the next year, an increase compared to the previous questionnaire (only 29% of respondents had adopted TCFD recommendations in 2020). Among the IFNs, only 36% already use these standards and 32% are to align within a year,” states the report quoted by Agerpres.

Regarding the integration of climate or environmental risks in stress testing exercises, the results of the BNR Survey show that at the level of the financial sector in Romania there are concerns in this direction, but the level of involvement is still low at present, the prospects being for improvement in next year. A number of 4 credit institutions have already integrated this type of risk in stress testing to assess potential losses in the event that transition, physical or other environmental risks materialize. Two of them also developed an action plan for mitigating the impact resulting from the stress test exercise, by clearly defining decarbonization targets, operational limits and targets for increasing investments in green projects. In addition, 5 other credit institutions are planning this adjustment for the next year. Most of them declared that the climatic stress test exercise was carried out or will be carried out at the level of the groups they belong to.

Currently, no non-banking financial institution in Romania participating in the Survey has a stress testing exercise that includes climate risk, but there are initiatives in this regard – 14% of the responding IFNs stated that they will integrate climate risk into the stress testing exercises stress testing starting next year.

Also, the results of the questionnaire indicate a growing interest both from the credit institutions and from the IFN for the financing of green projects in the next period. Most of the responding institutions (90% of the credit institutions, respectively 82% of the IFNs) have launched or are considering the launch of green products in the future (the next three years). Although the definitions of green products are different at the level of the responding institutions, most of them present characteristics and processes aligned with the European Union Taxonomy or are in line with the Green Loans Principles (developed by the Loan Market Association). Some of the credit institutions, however, declared that they are guided by their own definitions or by those of the group they belong to.

Regarding the green mortgage loans granted to the population sector, 60% of the responding credit institutions consider the information related to the building’s energy performance certificates when granting the loan. The share of mortgage loans with A-rated energy certificate in the banks’ portfolio varies from 1% to 50%.

According to the BNR, the material was developed within the Financial Stability Directorate under the coordination of First Vice-Governor Florin Georgescu.

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