Banks and Environmental Sustainability: Some reflections from the perspective of financial stability

There is growing evidence suggesting that climate change risks have important implications for financial stability, although the analysis of the complexity of the potential risks to the financial sector is still at an early stage. This Policy Brief quantifies the direct (syndicated) loan exposure to elevated environmental risk sectors of the largest banks in the EU, Switzerland, the US, Japan and China on average at between 0.3 to 3.7% of total banking assets and �1.35 trillion in total as of December 2014. Policy recommendations: The policy recommendations operationalise the 2016 recommendations on climate-related issues issued by the Enhanced Disclosure Task Force (EDTF) to G20 countries and advise revising the banks� prudential policy to consider environmental risks. � Better understanding the direct exposure to high environmental risk sectors demands a reliable and harmonised statistical framework that allows for detailed identification of sectors exposed to high environmental risks along the SIC (and NACE in the EEA) classifications. � Develop credit registers to become a tool that facilitates the assessment of environmental risk drivers in �carbon stress tests�. � Environmental aspects should be considered in the revisions of the assessment methodology of the Basel Core Principles for Effective Bank Supervision