FRANKFURT: A sudden jump in carbon prices coupled with floods and droughts this year would lead to losses of at least 70 billion euros ($71.1 billion) for the euro zone’s largest banks, the European Central Bank said on Friday, according to Reuters. The ECB said the estimate in its first climate stress test significantly understated actual losses for the 41 banks in the sample because it focused only on credit and market risk and did not take account of indirect effects such as an economic downturn. This could soon become relevant as the euro zone struggles with drought, rising energy prices and possibly even a halt to gas supplies from Russia in the autumn in retaliation for sanctions imposed over its invasion of Ukraine. Banks and other companies are under increasing pressure from shareholders and environmental groups to act quickly to reduce the carbon footprint of their activities. The central bank’s test also found that most euro zone banks did not have a framework for modelling climate risk and did not typically take it into account when granting loans. “Euro area banks must urgently step up efforts to measure and manage climate risk, closing the current data gaps and adopting good practices that are already present in the sector,” said the ECB’s chief supervisor, Andrea Enria. The findings will not have an impact on the amount of capital banks need to have this year and will only feed into its supervisory work “from a qualitative point of view,” the ECB said. But reality could catch up with banks quickly, according to activist group Positive Money Europe. The group says it expects euro zone households to face a “triple whammy” of higher living costs, more expensive fuels and heftier mortgage payments as the ECB raises interest rates. “Far more people across Europe are going to struggle to repay their mortgages in the coming years than the ECB’s results today suggest,” said Stanislas Jourdan, executive director of Positive Money Europe, which campaigns for more sustainable finance. The ECB is carrying out a separate “thematic review” to gauge banks’ progress toward incorporating climate and environmental risk into their business. It expects them to meet its expectations by the end of 2024 at the latest. The Bank of France was first among central banks to undertake a climate stress test of banks and insurers last year, followed by the Bank of England. In its exercise, the Bank of England found that banks and insurers that fail to manage climate risks as a “first-order” issue could face a 10-15 percent hit to annual profit and higher capital requirements.