By Francesco Guarascio BRUSSELS (Reuters) - Financial firms in the European Union may have to undergo stress tests on their exposure to climate change risk, such as floods, and to energy intensive sectors where assets are more exposed to repricing, a document seen by Reuters showed. The proposed move would be designed to reduce long-term systemic risks linked to extreme weather or volatile energy prices. European Union finance ministers and central bankers will discuss the opportunity of "carbon stress testing" in the financial sector at a monthly meeting in Amsterdam on April 22-23, a document of the Dutch presidency of the EU said. It would be the first time that the topic is discussed at this level. "Financial firms are potentially exposed to stranded assets and sectors that need to adjust," the document said, listing steel, transport and real estate among the riskiest sectors. "The financial sector is also exposed to risks related to climate change itself," such as extreme weather or floods, the paper said, adding that "stress testing can be an important tool to assess these risks." "Supervisors should monitor these risks and take prudential action when these are insufficiently managed," the document said. The issue is presented in the paper as a subject open for discussion with no decisions expected. A European official said that several EU central bankers have shown support for more disclosure of climate change risks as it would strengthen financial stability and help investors' choices. Bank of England Governor Mark Carney has openly warned against the dangers of not taking in sufficient account climate risks and has called for more disclosure. The issue remains "controversial," the official said, as many states oppose saddling their banks and insurance companies with new regulatory and capital requirements. The United Nations authority for the environment, UNEP, in a 2015 report suggested "sustainability stress tests" for the banking sector could explore the impact of environmental and social events on lenders' assets and business models. It called to assess the impact on banks' balance sheets of air pollution, climate change, inequality, natural hazards, new technology, soil erosion and water stress. (Editing by Jeremy Gaunt)
According to Reuters, finance firms within the European Union may be subject to stress tests to assess their exposure to climate change risks. The potential tests will be discussed by EU finance ministers and bankers at a meeting in Amsterdam later this month. The document outlining the proposals identifies real estate, transport and steel as some of the sectors most vulnerable to risk. No firm decisions are expected to be taken at the meeting. Mark Carney, Governor of UNEP, has previously called for greater disclosure on climate change risk. Last year, the United Nations environmental body, the Bank of England, considered the benefits of “sustainability stress tests” in banking in relation to issues such as air pollution, climate change, natural hazards, inequality, soil erosion and water shortage.