The ECB will examine the trading operations of major banks in next year's climate stress tests. They argue that simply assessing the loan books does not fully understand the consequences of global warming they face.
Alvarez & Marsal, a consultant involved in the stress test process, told Bloomberg that the ECB, which has not publicly disclosed its stress test parameters, would also study the reputational and operational risks faced by banks.
For banks that have warned that they are not ready for next year's landmark test, checking their trading operations is an additional challenge. The ECB is asking for more details than other central banks and is putting more pressure on the industry behind the scenes.
In Europe, politicians want banks to direct capital away from polluting companies and become a key force in tackling climate change. Investors are noticing that banks burdened with carbon-intensive balance sheets may face higher capital requirements, which could undermine their ability to pay dividends.
"No bank has what the ECB wants," said Fernando de la Mora, managing director of Alvarez&Marsal, which advises banks on preparing stress tests. "Global banks face the additional challenge of finding data outside Europe, where data is limited."
An ECB spokesman declined to comment.
The ECB also requires banks to provide emissions data related to the revenues they generate, which the Bank of England did not use in its climate stress tests this year because of a lack of available data, according to Alvarez & Marsal.
In practice, eurozone banks will have to estimate the carbon emissions of companies behind most of their fees and interest income. The consultant's analysis shows that they also need to provide emissions, loans and income data related to their biggest customers.
De la Mora said the decision to include banks' trading books further increased the complexity of the operation, but it would also allow the ECB to see what could happen when equity or bond portfolios faced shocks such as debt losses from oil companies.