AGEFI Luxembourg - juin 2025

AGEFI Luxembourg 18 Juin 2025 Conseil / RSE C limate change is increas- ingly recognizednot only as an environmental and social challenge but also as amajor finan- cial and economic risk, and a strate- gic opportunity. For financial institutions especially, understand- ing andmanaging exposure to cli- mate-related risks has become imperative. These risks canpresent a dual challenge for the sector: the increasing frequency of physical events like floods andheatwaves, and the systemic shifts required to transition to a low-carbon econ- omy. For EUbanks, managing bothdimensions is no longer op- tional, but instead it is a strategic necessity as these dynamics impact all core banking functions, from lending and investment to private banking and advisory. Recent data from the European Banking Authority (EBA) shows that over 70% of EUbanks’exposuresaretohigh-emission sectors,underscoringthescaleoftransition risk. Meanwhile, only 3% of assets cur- rently qualify as greenunder the EUTax- onomy, highlighting the untapped potential for sustainable finance. (1) Failuretoassessandintegrateclimaterisks poses a significant threat to the financial stability and resilience of banks. For in- stance,theEuropeanSupervisoryAuthor- itiesandtheEuropeanCentralBank(ECB) estimate that EU banks could face aggre- gate losses ranging from €340 billion to €640 billion, (2) representing 6% to 11% of total credit exposures, depending on the specificclimatescenarioconsidered.These losses primarily stem from deteriorating assetqualityandincreaseddefaultratesin sectors vulnerable to climate change. Re- search indicates that firms exposed to cli- mate-relateddisastersareupto30%more likely todefault on their loans (3) in the two years following such events. This in- creaseddefaultriskisprimarilyduetothe impacts on physical assets and ongoing operational disruptions. Banks that fail to anticipate and manage these risks may face significant financial losses, reputa- tional damage, and regulatory sanctions. Supervisoryexpectationsareemphasizing the need for robust climate risk gover- nance, scenario analysis and the integra- tion of climate considerations into credit risk assessments and capital planning. Current regulatory landscape Regulators are stepping up efforts to de- carbonize the banking sector through new rules and frameworks. In Europe, key initiatives aim to address climate-re- latedfinancialrisksandpromotesustain- able finance. The EBA has introduced PillarIIIdisclosurerequirements,obligat- ing banks to report on climate exposures, mitigation actions, and alignment with sustainability goals to enhance trans- parency andmarket discipline. Complementing this, theCorporate Sus- tainability Reporting Directive (CSRD) and the EU Taxonomy Regulation re- quire financial institutions to publish credibletransitionplanswithmeasurable targets and timelines. These frameworks ensure that institutionsdemonstratehow their strategies contribute to climatemit- igation and adaptation. At the global level, the International Sus- tainability Standards Board (ISSB) has launched IFRS S1 and S2, effective from January2024, settingaglobal baseline for sustainability reporting. IFRS S2 focuses on climate-related governance, strategy, riskmanagement, andmetrics, and isde- signed to align with EU standards like CSRD and ESRS. The ECB has issued climate-related su- pervisory expectations, including stress tests and reviews to assess banks’ pre- paredness. Locally, Luxembourg’s CSSF requiresfinancial institutions to integrate sustainability risks into governance and riskmanagement. The regulatory landscape still remains complex. Differing national commit- ments andshiftingpolitical priorities cre- ate uncertainty, posing challenges for institutions striving to align with evolv- ing sustainability standards. Understanding climate risks and the climate transitionplan Climaterisksrefertothepotentialnegative impacts that climate change can have on anorganization’soperations,financialper- formance,andoverallstability.Theserisks can be categorized into two main types: physicalrisksandtransitionrisks.Physical risks arise from climate-related events suchasextremeweatherconditions,rising sea levels, and chronic climate changes thatcandirectlyaffectassetvalues,supply chains, and operational continuity. Tran- sition risks, on the other hand, are linked to the movement towards a low-carbon economy and can arise from regulatory changes, shifts in market preferences, or technological disruptions. To address these challenges, financial in- stitutions must conduct comprehensive climate risk assessments. This process in- volves identifying and quantifying vul- nerabilities across their portfolios, analyzing how various climate scenarios could impact their operations. Tools such as climate risk stress testing and scenario analysisareessentialforevaluatingthefi- nancial implications of potential climate- relatedevents.Additionally,engagement with stakeholders, including clients and industryexperts,enablesfirmstogainin- sights into sector-specific vulnerabilities and better understand how climate risks may evolve over time. To adequately respond to the conse- quences of climate risks, companies should implement a climate transition plan, a strategic framework that outlines their pathway toward decarbonization. This plan not only defines the steps needed to align with a low-carbon econ- omybut also serves as aproactive tool for managing climate-related risks. A credible and effective transition plan should include five key elements: 1.GHGEmissionreductiontargets: clear, science-based targets aligned with global climate goals 2. Identification of the decarbonization levers : including both operational and fi- nancial strategies 3. Strategic integration : ensuring theplan aligns with the institution’s core business model and long-termstrategy 4.Governanceofclimateissues :defining roles,responsibilities,andoversightmech- anisms 5. Monitoring and verification : regular progress tracking, supported by external assurance Banks have apowerful role indrivingde- carbonization,primarilythroughthecom- position of their financing portfolios. By shifting capital away from high-emission sectors and actively engaging with these industries to support their transition, banks can significantly influence the pace of the climate transition. Rather than sim- plydivesting,forward-lookinginstitutions arehelpingcarbon-intensivesectorsadopt low-carbon technologies and practices. Additionally, banks are innovating with sustainable financial products, such as green bonds, sustainability-linked loans, and climate-focused investment funds, to direct capital toward environmentally beneficial outcomes. Internally, banksmust also address their own operational emissions.While Scope 1 and 2 emissions are typically smaller thanfinancedemissions,theyremainim- portant. Actions like improving energy efficiency, transitioning toelectricvehicle fleets, and sourcing renewable energy contribute to a more sustainable opera- tional model. Toguide their transitionstrategies, banks can rely on a suite of tools. The Partner- ship for Carbon Accounting Financials (PCAF) helps measure financed emis- sions, the Science BasedTargets initiative (SBTi) supports setting science-aligned targets, Paris Agreement Capital Transi- tionAssessment(PACTA)evaluatesport- folio alignment with climate scenarios, and the Accessing Climate Transition (ACT) frameworkassesses the credibility of transitionplans. Sincenosingle frame- workcaptures all dimensionsof the tran- sition, institutions should adopt a tailored, multi-tool approach to build ro- bust and credible climate strategies. Ultimately, a structured climate transi- tion plan not only addresses regulatory compliance but also positions institu- tions to capitalize on emerging opportu- nities in the green economy. By integrating sustainability into their core business strategies, financial firms can enhance their resilience against climate- relateddisruptionswhile fostering long- termvalue creation. The strategic benefits of climate risk integration Implementingtransitionplansanddecar- bonizing investment portfolios can often lead banks to achieve better financial re- turns. Strategies favoring low-carbon and ESG best-practice firms for example, can help banks reduce portfolio default risk (PD)while enhancing returns. A recent study by MSCI (4) analyzed the performance of ESG-rated companies in developed markets over 17 years and in emerging markets over 11 years. The findings revealed that top-rated ESG companies consistently outperformed theirlower-ratedcounterparts,drivenpri- marily by stronger earnings fundamen- tals rather than valuation expansion. Furthermore, early adopters of climate risk strategies can set themselves apart in themarket,appealingtoenvironmentally conscious customers. Bankswouldbenefit fromstarting to: 1. Assess their exposure to climate risks, identifying thematerial ones 2. Quantify the potential impacts of cli- mate-relatedriskson their operations and financingportfolios 3. Integrate climate considerations into their existing Risk Management Frame- work andfinancingdecisions 4. Formalize their transition plan: set tar- gets, identify key decarbonization actions andmonitor their progress over time Adoptingproactiveclimatestrategiescon- tributes to the long-term resilience of fi- nancial players. By being better prepared tonavigatetheuncertaintiesofachanging climate and regulatory landscape, these organizationscanmitigatepotentiallosses whileunlockingnewopportunitiesforop- erationalefficiency,investmentattraction, and sustainable growth. For banks, the transition to a low-carbon economywill require time, strategicplan- ning, and sustained governance. Boards andbusinessleadersmusttakeownership now, embedding climate risk into core bankingoperations,riskframeworks,and long-termgrowthstrategies throughcon- tinuousmonitoring and accountability. Vanessa MÜLLER, EY Luxembourg Partner, ESG Leader Blanca HIDALGO, EY Luxembourg Senior Decarbonization and Carbon Accounting Expert Andrea ZARA, EY Luxembourg Senior Climate Risk Expert 1)EBA(2025)TheEBApublisheskeyindicatorson climate risk in the EU/EEAbanking sector | Euro- peanBankingAuthority 2)EuropeanCentralBank(2024).“Fitfor55climate scenarioanalysis” 3) Centre for Economic Policy Research (2025). “FloodriskandcredittoSMEs” 4)MSCI(2024).“17yearsofMSCIESGRatingsand long-termcorporateperformance” EU bank’s green shift: leading with climate strategy L 'Union européenne (UE) s'apprête à retar- der lamise en place de nouvelles règles régissant les activités de négociation des banques sur lesmar- chés, en attendant plus de clarté sur les projets de déré- glementation du secteur fi- nancier de l'administration américaine, ont déclaré des sources à Reuters. Ces règles s'inscrivent dans la Revue fondamentale du porte- feuilledenégociation( Fundamental Review of the Trading Book - FRT B), undispositifréglementairepourle suivi des risques de marché et un élément clé du dispositif des accords de Bâle III conçus dans le sillage de la crise financière amor- cée en 2007. Mis en œuvre en Chine, au Japon ou au Canada, le FRTBn'apasencoreétéadoptépar la Grande-Bretagne ou les États- Unis, deuxdes principaux centres financiers du monde. Son adop- tiondansl'UEaégalementdéjàété repoussée d'un an, à 2026, l'année dernière, lorsqu'il est apparu clair que les États-Unis ne seraient pas en mesure d'adopter les règles dans le délai initialement prévu. L'ajournement de son adoption, au 1 er janvier 2027, reflète la pres- sionexercéeparlesbanqueseuro- péennes qui craignent d'être dés- avantagées par rapport à leurs rivalesaméricainesetbritanniques, ont déclaré cinq hauts fonction- naires d'institutions européennes et nationales. Une source euro- péenne de haut niveau a déclaré que la commissaire européenne auxServicesfinanciers,MariaLuís Albuquerque, avait informé les ministres des Finances des états membres de l'UEde ce report lors d'une réunion le 13mai. LaCommission européenne avait déclaréqu'elleprendrait unedéci- sion sur le report ounonduFRTB d'ici la fin du mois de juin, après avoir consulté le secteur et ses superviseurs.LeFRTBrégitlesexi- gences en matière de fonds pro- pres et d'information concernant les actifs de négociation des banques,etnotammentlamanière dont le risque doit être mesuré à l'aide d'uneméthode standard ou de calculs propres aux banques. Les États-Unis ont bloqué l'intro- ductiondel'ensembledudispositif de Bâle III et l'administration du présidentDonaldTrumpasignalé qu'elle pourrait même assouplir certainesdesrèglesexistantes.Une telle décision marquerait un revi- rement par rapport à la pression exercée en faveur d'un renforce- ment des contrôles à la suite de la crise financière de 2007-2009. Les banques européennes ont exhorté l'UE à ne pas imposer de nouvelleschargesauxquellesleurs concurrents étrangers ne sont pas confrontés. "Il semble maintenant que cet ensemble de règles n'exis- tera pas aux États-Unis et nous savons que Bruxelles examine attentivement la question", a déclaré Bettina Orlopp, directrice générale de Commerzbank, lors d'une conférence le 22mai. "Nous devons veiller àmaintenir la com- pétitivité internationale des banqueseuropéennes."LaBanque centraleeuropéenne(BCE),leprin- cipal organisme de surveillance bancaire de l'UE, qui a longtemps été un fervent défenseur d'une miseenœuvrerapidedeBâleIII,a proposé un compromis au début dumois. Elle envisageait de retar- der d'un an les règles appliquées auxmodèlesderisqueinternesdes banques, tandis que celles concer- nant l'approche standardisée seraient introduites progressive- ment sur trois ans àpartirde 2026. Certains gouvernements se sont également exprimés, le président françaisEmmanuelMacronappe- lant à une "synchronisation" des règles financières entre l'UE, les États-Unis et laGrande-Bretagne. Au début de l'année, la Grande- Bretagne a repoussé la mise en œuvre de Bâle III à 2027, tandis que Washington n'a pas encore dévoilé de calendrier. En revanche, l'UE a déjà mis en œuvre la majeure partie du dis- positif de Bâle III, qui est entré en vigueur cette année. La Chine, le Japon et le Canada l'ont fait depuis longtemps. En mars, la Commission européenne a lancé une consultation, demandant aux banques et aux autorités de sur- veillance si elles pensaient que le FRTB devrait entrer en vigueur l'année prochaine, être retardé de 12moisouêtremodifiépours'ali- gner davantage sur les projets de réglementation des États-Unis et du Royaume-Uni. La Fédération bancaire euro- péenne, un organisme sectoriel, a déclaréque lesbanquesmembres exposées à la concurrence améri- caine et britannique étaient favo- rables à un report d'un an. L'International Swaps and Derivatives Association, un groupe de pression international, a déclaré qu'une "nette majorité" de ses membres était également favorable à un report, même si une minorité préférait que le FRTB entre en vigueur l'année prochaine afin d'éviter d'avoir à appliquer à la fois les nouvelles et les anciennes règles. Source :Reuters L'UE retarde les règles de Bâle III sur les risques de marché ©Freepik