Welcome to Better Europe’s weekly update on EU Affairs.
IF BANK STRESS TEST FAILS, WHO WILL PAY FOR CLIMATE RISK?
The European Banking Authority is finally stress-testing banks on climate risk. For the first time in history, climate risk is explicitly included in the next test, designed for 2027. But the biggest question is not whether the banks will pass, but whether the system will hold, and whether taxpayers will end up chipping in if it doesn’t. To the relief of the simplification ayatollahs, the EBA’s new methodology cuts data requirements by 55%. But the real novelty is the inclusion of transition and physical climate risks, even if they are only in a dedicated module without impacting the core results. As of next year, banks will have to test how their investments react to a sudden shift in climate policy including those that cause energy price shocks, and how potential physical threats such as a massive river flooding could damage real estate and impact loan portfolios. A step forward? Certainly. But measuring the risk is just a first step. As think tank Bruegel warns, low insurance coverage is turning EU governments into “disaster insurers of last resort.” With only 25% of disaster losses covered by insurance in Europe (and as low as 3% in Italy), the public purse is at risk either way. Bruegel’s advice? Governments need to integrate climate scenarios into fiscal frameworks and invest in prevention and adaptation, before the next crisis hits. Because it will hit, sooner or later.
CAN THE EPP HOLD THE EP TOGETHER?
The Grand Coalition of EPP and S&D is not a new invention – it has been around since 1987, with a little help since 2019 from the friends at Renew. But to get von der Leyen a second mandate in 2024, the EPP was happy to make an informal coalition with the conservative ECR, and is now gearing up for the mid-term reshuffle of key Parliament posts. Maltese EPP MEP Roberta Metsola would like a third term as President of the Parliament, a post that has traditionally been shared half-mandate with the S&D, the second largest group. It is just one of the reasons why the EPP has been shopping around for alternative “majorities”, much to the delight of French presidential hopeful Jordan Bardella who argues his group has become incontourable now that it has reached a critical size and influence. Taking credit for this week’s drama on the migration returns regulation, his Patriots for Europe group has managed to expose the EPP’s open love affair with the far-right groups and is gearing up for a potential permanent seat at the table on the EPP’s side. Add to this the mid-mandate reallocation of committees and leadership posts, which traditionally pushes some MEPs to reconsider their group allegiance, with some potentially enticed to swap group in exchange for a nice post as Vice-President of a group or Vice-Chair of a committee. The result? It’s still the EPP that has to hold the EP together — whether that means going back to the old grand coalition roots, or giving Europe its first right-wing majority ever.
DUE DILIGENCE GUIDELINES: FROM PAPER TO PRACTICE
After years of lobbying, Omnibus-driven simplification, and political horse-trading, the Corporate Sustainability Due Diligence Directive (CSDDD), or what is left of it, is finally going live. But not before the Commission completes the technical guidelines. The devil is in the detail, and seemingly innocent technical provisions cover everything from model contract clauses and risk factors to stakeholder engagement and guidance on due diligence and climate transition plans. So, the Commission wants your input on how to turn this legal obligation into something companies will actually do. Yes, it really wants your personal input – one of the target audiences is the “General Public: EU and non-EU citizens who wish to contribute their views on corporate responsibilities and practices”. Perhaps that’s to balance the feedback it is expecting from the stakeholders that encouraged the Commission to run an Omnibus over the rules – the ones that left MEPs and Member States guessing how many companies would even be covered, as they debated arbitrary thresholds like 1500, 2000, or (why not) 1750 staff. We like to be naïve, so now that the Commission’s inbox is open, let’s see who shows up.