Chain reaction

Last month, the European Banking Authority released a set of requirements for banks aimed at helping them manage so-called ESG risks. The requirements include measuring and assessing said risks and incorporating them in lenders’ risk management frameworks.

Put simply, this means that banks are about to be obligated to calculate climate change — and transition — risks as part of their business as usual activities — all of their activities.

Of course, ESG here is a shorter way of saying banks will need to start assessing climate change and transition risks and incorporate them in all aspects of their business, as in, literally all.

What caught my eye when I read a news release on the topic was the following list of “risk categories”, per ESG Today: “credit, market, operational, reputational, liquidity, business model, and concentration.”

Apparently, climate change — and the transition — is likely to affect each and every one of these categories for banks, so they need to start measuring those risks and accounting for them. At no additional cost to pass on to their clients, I’m sure.

A few weeks later, the news broke that Barclays had decided to reduce its exposure to the oil and gas industry, where reduced exposure means the bank won’t extend loans for new oil and gas projects. It will probably report it as reputational risk, I don’t know.

The significance of Barclays’ move lies in the fact that it is a direct result of activist pressure. That would be the same pressure that prompted most other big European banks to announce similar curbs on the business they would do henceforth with the oil and gas industry, for fear of reputational damage — and tighter capital requirements from transition-minded banking authorities.

A few days after the Barclays news broke, Fortune reported that young people in Europe were drinking less alcohol — a lot less. Because they couldn’t afford to drink as much as they used to.

Citing data from British market research provider Savanta, the report said that there’s a sobriety trend developing in Europe, and it was especially pronounced among millennials and Gen Zers, whom the author of the report called “Europe’s struggling young people.”

Now, what’s the link between EBA’s new ESG reporting requirements, Barclays’ decision to curb lending to oil and gas, and young Europeans’ changing drinking habits? Why, thank you for this excellent question.