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The impact of ECB Banking Supervision on climate risk and sustainable finance

Author

Listed:
  • Beyer, Andreas
  • Schreiner, Lena

Abstract

This paper provides a first empirical analysis of the impact of the European Central Bank’s (ECB’s) climate-risk-related supervisory efforts on (i) climate risk exposure and related risk management of banks; and (ii) on the induced shifts in banks’ portfolio choices with regard to additional green finance. From 2020 onwards, the ECB has introduced various measures to enhance climate-risk-related supervisory efforts. Our identification strategy exploits the fact that the ECB’s efforts on climate supervision has only been introduced for selected banks within the European Union i.e., the Significant Institutions under the Single Supervisory Mechanism. Other banks (i.e., the Less Significant Institutions) have remained unaffected. We set up a difference-in-difference setup based on a novel data set and find a significant impact on both improvements in climate risk exposure and management and on an increase in banks’ green finance activities. JEL Classification: D25, G21, G28

Suggested Citation

  • Beyer, Andreas & Schreiner, Lena, 2024. "The impact of ECB Banking Supervision on climate risk and sustainable finance," Working Paper Series 2952, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20242952
    Note: 336354
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    More about this item

    Keywords

    banking supervision; climate stress test; green lending; sustainable finance;
    All these keywords.

    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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