ECB Vice-Chair discusses climate risk management and supervisory strategies

Frank Elderson, Member of the Executive Board of the European Central Bank (ECB) and Vice-Chair of the Supervisory Board, discussed the ECB’s supervisory approach to managing climate and nature-related risks in an interview on 17 February 2026.

He explained that the process around periodic penalty payments for climate risk management was multi-year, starting with supervisory expectations in 2020, self-assessments in 2021, and reviews in 2022. The ECB set a deadline for end-2024 with interim milestones, including a materiality assessment in March 2023.

All but two of the 110 banks under supervision managed these risks without the need for penalty payments. The ECB issued 32 decisions across three waves, with most banks meeting deadlines, demonstrating that proportionate escalation and data-driven assessments are effective.

The ECB classifies findings into four categories (F1 to F4), with F3 and F4 being most material. The ECB aims for a risk-based, efficient, and constructive supervisory relationship, emphasizing dialogue before escalation.

Regarding risk data aggregation and reporting, the ECB noted progress but indicated some banks still need to improve. The use of escalation tools, including penalty payments, remains under consideration.

On regulatory standards, the ECB does not comment on other jurisdictions but emphasizes maintaining resilience and supervisory standards, advocating for no deregulation. The ECB promotes a unified approach to European financial integration, including completing the banking union and capital markets union.

The ECB is reviewing its supervisory guides and “Dear CEO” letters to improve clarity, reduce outdated content, and emphasize non-legally binding guidance. On leveraged finance, discussions are ongoing, particularly regarding the debt to EBITDA ratio.

On on-site inspections, the ECB plans shorter, targeted, and more focused reviews, enhancing communication and agility while maintaining rigor. The ECB monitors risks around synthetic risk transfers, including rollover risks, but has not yet considered policy limits.

The timing of implementing the Fundamental Review of the Trading Book (FRTB) is a priority, aiming for timely and consistent Basel implementation, considering international developments.

Regarding European integration, Elderson emphasized the importance of completing the banking union, deposit insurance, and capital markets union, urging swift action to overcome national considerations.

He commented on cross-border banking, stating that consolidation should be based on clear legal criteria, and expressed satisfaction with the progress made since the Brexit referendum, ensuring banks have a real presence in the euro area.

On climate scenarios, Elderson highlighted increasing risks of disorderly transitions if legislative and policy measures are not enacted promptly, emphasizing the need for science-based approaches.

He addressed the potential for revisiting the green supporting factor, stressing that the ECB’s role is risk-based and that climate policies are outside its mandate. The ECB focuses on maintaining price and financial stability and safe banking practices.