The European Central Bank (ECB) on Wednesday put pressure on eurozone banks to tackle risks stemming from climate change by threatening to impose penalties on any laggards, according to Politico.
In a thematic review of banks’ practices, taking in 186 banks holding total assets of €25 trillion, the top EU banking supervisor said lenders are still mostly adopting a “wait-and-see approach” to identifying and managing climate risks.
The ECB therefore set a series of intermediate targets in 2023 before a final deadline for banks to meet its expectations in full at the end of 2024.
“Deadlines will be closely monitored and, if necessary, enforcement action will be taken,” Frank Elderson, vice chair of the ECB’s Supervisory Board, said in a blog post.
The Dutchman, who has been leading the charge on climate change at the ECB, said banks are still failing to “grasp the full magnitude” of climate and environmental risks, adding actual shifts in revenue “remain rare.”
Under the ECB’s timeline, banks will have to categorize climate risks and assess the impact on their activities by March 2023 at the latest. By the end of 2023, the lenders need to include climate risks in their governance, strategy and risk management.
While banks have put basic practices in place and made some progress, the ECB said they still lack more sophisticated methodologies and granular information — meaning almost all lenders have “blind spots.”
The ECB is mainly asking for qualitative changes from banks rather than imposing capital charges. Still, a small number of lenders will see an impact in the Supervisory Review and Evaluation Process (SREP) this year, which has a knock-on impact for capital.