Euro zone banks still largely fail to meet the European Central Bank’s climate disclosure and management expectations, and laggards who keep failing deadlines could be forced to hold more capital, the ECB said on Wednesday.
Supervising the euro zone’s biggest banks, the ECB has been pushing lenders to start factoring climate issues into how they run their business, but boards have been slow to recognise the issue and adapt their business models.
“The glass is filling up slowly but it is not yet even half full,” ECB board member Frank Elderson said in a blog post. “Too many banks are still hoping for the best while not preparing for the worst.”
“We detected blind spots at 96% of banks in their identification of climate-related and environmental risks in terms of key sectors, regions and risk drivers,” he added.
In an attempt to force action, the ECB is putting banks on a schedule, and they will have until the end of 2024 to meet all supervisory expectations.
By next March, lenders will have to adequately categorise climate and environmental risks and must conduct a full assessment of their impact.
Then by the end of 2023, the ECB expects banks to include climate and environmental risks in their governance, strategy and risk management. All other criteria must then be met by the close of 2024.
“The deadlines will be closely monitored and, if necessary, enforcement action will be taken,” Elderson, the vice chair of the ECB’s supervisory board, said.
The ECB already imposed “binding qualitative requirements” on more than 30 noncompliant banks in its annual supervisory review and for a small number of banks, this impacted their final scores, which then influences how much capital a lender is required to hold, the ECB added.