Climate change and nature degradation are exposing banks to new financial risks, prompting French and European authorities to strengthen expectations around climate and environmental risk management. According to a new Banque de France publication, three key measures have driven changes in French banks since 2020: the development of forward-looking tools such as scenarios and stress tests, stronger supervisory scrutiny, and, from 2026, the requirement for banks to prepare a prudential transition plan. The entry into force of the French transposition of the European Union’s Capital Requirements Directive 6 (CRD6) in April 2026 represents a significant step in integrating climate and environmental risks into the prudential framework.
The scale of potential exposure is significant. Banque de France notes that a combination of heatwaves, droughts and forest fires across Europe could reduce French GDP by as much as 7.4% in a single year under one 2025 climate scenario. A 2024 European Central Bank “Fit-for-55” stress test estimated that a combination of transition, macroeconomic and geopolitical shocks could generate an additional €50 billion in losses for the banking sector between 2023 and 2030, equivalent to 0.9% of exposures, while the estimated impact for the financial system as a whole was €518 billion, or 2.1% of exposures. The publication also notes that nature-related risks are broader than climate risks and that work on measuring their financial impact is still developing.
Supervisory pressure has already produced measurable improvements. Among France’s 10 largest banks, none were classified as having “advanced” climate and environmental risk-management practices in 2022, whereas more than one-third had reached that level by the end of 2024. Some banks have developed counterparty classification systems that incorporate carbon emissions, sectoral and geographical sensitivity and the ability of borrowers to adapt to climate risks. However, progress remains uneven, particularly in credit-risk management, and European supervisors have imposed financial sanctions on institutions that failed to meet certain climate-risk assessment requirements. Under CRD6, banks must now establish prudential transition plans explaining how they identify, assess and manage ESG risks, while supervisors have greater powers to require changes to governance, risk-management processes and transition targets.
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