Our data in action: Risks from misalignment of banks’ financing with the EU climate objectives

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Nine out of 10 banks in the EU are not aligned with the Paris Agreement concludes a landmark report from the European Central Bank; a finding made possible by Asset Impact’s asset-based data and the PACTA methodology.

Earlier this year, the European Central Bank (ECB) published a landmark report to demonstrate to the banks it supervises how they can measure transition risks associated with the net zero transition. With the findings that nine out of 10 banks are misaligned with the Paris Agreement, the ECB has urged the banks to identify, measure, and–most importantly–manage the risks

While quantifying the risks is challenging, it is far from impossible," writes Frank Elderson, Member of the Executive Board of the ECB in relation to the report.  Overcoming the challenge starts with better and more consistent data: the ECB’s report uses Asset Impact’s data and forward-looking analytics to carry out an “alignment assessment”. This involves measuring transition risks by comparing the projected production volumes in key economic sectors with the required rate of change to meet given climate objectives. The assessment can be repeated over time, making it possible to measure whether a company is transitioning towards low-carbon production and to what degree the pace of transition is consistent with EU climate policies.

Banks looking to mitigate material legal and financial risks of misalignment can take the same approach and use Asset Impact data to build a picture of the risks and opportunities underlying their lending portfolios and start to manage them effectively.

Read the report here: ECB’s report ‘Risks from misalignment of banks’ financing with the EU climate objectives’

Read the blog here: ECB’s blog ‘“Failing to plan is planning to fail’’ – why transition planning is essential for banks