Climate change, risks and ECB strategy: what is the effect on European banks’ stock return?

In light of the European Central Bank’s (ECB) growing commitment to addressing climate change, this paper analyses how the ECB climate-related announcements affect banks’ stock market performance. Employing an event-study methodology on narrow event windows, we explore: (i) the banks’ response across the five announcements, (ii) differences among European banks, Eurozone banks, and ECB-Supervised Institutions, and (iii) the type (positive or negative) and intensity of the response. Our findings reveal heterogeneous effects: the first, second, and fifth announcements trigger significant abnormal returns, partially discounted beforehand. Conversely, the third and fourth announcements exhibit limited effects. In all cases, effects dissipated rapidly. These results contribute to the understanding of how climate-related ECB communications interact with financial markets and bank stock returns, offering insights for investors assessing climate policy, for banks in managing climate-related risks, and for policymakers designing effective communication strategies.