European Banks' ESG Risk Factors and 2024 Outlook

We have released a commentary reviewing how credit ratings or credit rating trends of European financial institutions have been affected by either an Environmental, a Social, or a Governance factor in 2023 and our ESG outlook for 2024.

Key highlights include:

-- ESG factors for European banks tend to be primarily Governance factors. Governance issues such as misconduct and legal risks are key operational risks and remain at the top of European authorities' agenda in 2024.

-- Data Privacy and Security is also on the top of the agenda. The European Central Bank is conducting a thematic stress-test on cyber resilience, on how European banks respond to and recover from a cyberattack with results to be published during the summer of 2024.

-- We expect the focus on climate change to continue. We will likely see further developments on climate-related risk disclosures and management in 2024 as required by the European banking authorities.

"Governance and Social factors affected credit ratings in 2023, however, materiality assessments of climate change related risks remain a key focus." notes Vitaline Yeterian, Senior Vice President, Global FIG at Morningstar DBRS. "The impact of climate change and environmental risks on credit ratings could become more significant over time, should banks not mitigate the risks adequately".