Expectations on climate-related and environmental risks for less significant institutions

Public NBB_2023_02 – 09 February 2023 Communication – Page 1/2 Boulevard de Berlaimont 14 – 1000 Brussels Phone: +32 2 221 30 17 Company number: 0203.201.340 RPM (Trade Register) Brussels www.nbb.be Communication Public Brussels, 09 February 2023 Reference: NBB_2023_02 Contact person:
Brenda Van Tendeloo
Phone: +32 2 221 51 74 brenda.vantendeloo@nbb.be Expectations on climate-related and environmental risks Scope Credit institutions governed by Belgian law that qualify as less significant institutions (LSIs). Summary/Objectives This communication describes the expectations of the National Bank of Belgium (NBB) on climate-related and environmental risks. Dear Sir, Dear Madam, In this communication, the National Bank of Belgium (NBB) sets out its expectations regarding climate￾related and environmental risks. Climate-related and environmental risks can be a major source of financial risk, and have therefore been a key focus for the NBB for several years. It is becoming increasingly clear that both physical and transition risks can have a significant impact on the real economy and financial stability. The NBB therefore expects financial institutions to manage these risks with due caution and to communicate transparently on them. In November 2020, the ECB published a guide outlining its expectations on climate-related and environmental risks (see Annex). These expectations fit within the current prudential framework and cover the approach financial institutions should take in managing and communicating on these risks. In particular, the guide describes how the ECB expects institutions to consider climate-related and environmental risks when developing and implementing their business strategy, governance and risk management. It also explains how the ECB expects institutions to become more transparent and enhance their disclosures in this area. The NBB shares these expectations and considers that all Belgian credit institutions, including “less significant institutions” (LSIs), should meet the expectations set out by the ECB in its guide, while taking into account the nature, scope and complexity of the activities of the institutions concerned. In 2022, the NBB conducted a first prudential assessment of LSIs’ management and disclosure of climate-related and environmental risks. Overall, the NBB’s prudential assessment shows that most Belgian less significant credit institutions have started to adapt their practices to prudential expectations. However, significant shortcomings remain at all institutions in their development of suitable approaches for identifying, assessing, managing and disclosing climate-related and environmental risks. Such

Public NBB_2023_02 – 09 February 2023 Communication – Page 2/2 approaches enable all institutions to take timely and decisive action to ensure that these risks are managed and disclosed in a sound, effective and comprehensive manner. The NBB understands that the new characteristics of climate-related and environmental risks can present challenges for managing them, and recognises that there is a long way to go to overcome these challenges. It therefore attaches great importance to developing a strategic approach, including intermediate steps if necessary, especially where data and methodology gaps could hamper adequate compliance with supervisory expectations in the short term. The ECB publication (November 2022) on the good practices identified during the thematic analysis exercise at the significant institutions can serve as a useful guidance in this regard. Yours faithfully, Pierre Wunsch Governor
Annex: Guide on climate-related and environmental risks