FRANKFURT, July 8 Reuters 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 zone39;s largest banks, the European Central Bank said on Friday.

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 bank39;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 ECB39;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.

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