ECB threatens action against banks failing on climate risk

Banks must meet deadlines to align with ECB guidance

The European Central Bank has said it will take enforcement action against banks not meeting its climate deadlines.

Nearly all European banks are not doing enough to identify and combat climate risk, a review from the ECB has found.

The ECB this week published its review of 186 banks with total combined assets of €25trn, finding that although 85% have some basic practices in place to identify climate risk, 96% have blind spots and continue to significantly underestimate the scope of those risks.

“Some institutions have started to use transition planning tools, along with targeted client engagement to enhance the resilience of their business model over longer-time horizons, but a wait-and-see approach is still prevalent,” the review said.

Implementation of practices was a key concern for the ECB, which expects banks to fully align with the guidance it set out in 2020 by the end of 2024.

By March 2023 the ECB expects banks to “adequately categorise climate and environmental risks and to conduct a full assessment of their impact on the banks’ activities”, it said in a statement. And by the end of 2023 banks should have a risk management strategy that includes climate and environmental risk.

“The deadlines will be closely monitored and, if necessary, enforcement action will be taken,” the ECB’s statement continued.