This is AI generated summarization, which may have errors. For context, always refer to the full article. banks to consider the risks associated with climate change and inequality within their capital buffers. This unprecedented measure pushes financial institutions to incorporate environmental and social risks into the core of the banking industry, paving the way to sustainable finance.
Within the EU prudential framework for banks, banks must maintain regulatory capital in line with the risk profile of their assets. The impending changes will primarily enhance the inclusion of these risks in Pillar 1 of the framework, a Nevertheless, it’s important to acknowledge that not all stakeholders agree on this transition. Major banks, such as BNP Paribas, have voiced their to the decision to increase banks’ capital requirements as it would hamper their ability to finance the transition of their clients.
The transition towards a carbon-neutral economy is happening rapidly, which makes it easier to induce significant losses for banks already exposed to high-risk sectors. Accordingly, banks must implement updated regulatory frameworks throughout their value chains. The conventional risk factors concern the impacts on banks themselves.