ECB threatens to fine banks over climate risk shortcomings

November 23, 2023|Written by Moriah Costa|European Central Bank

The European Central Bank (ECB) has warned 20 banks that they will be fined if they don’t address their climate risk shortcomings, Bloomberg has reported.

Letters were sent out over the last few months to the banks giving them individual deadlines, as the central bank’s patience has worn out.

The news comes just a week after ECB board member Frank Elderson said the central bank had started to issue enforcements around climate risk, as some banks have failed to deliver on an interim deadline of March this year.

Lenders that don’t remedy their deficiencies around climate risk “will have to pay a penalty for every day the shortcoming remains unresolved,” he said during a speech in Brussels.

The ECB has taken a strong stance on addressing climate risks and has long told financial institutions in the EU they are not doing enough. The central bank released a guide for banks to identify and manage climate and environmental risks as part of their governance but a 2022 report found that none of the 109 banks under its supervision met its disclosure expectations.

“Although we have seen a number of good practices, at present none of the banks under our supervision fully meet all our expectations,” Elderson said.

According to Bloomberg, the fines will rack up every day and could amount to 5% of daily average revenue.

The ECB warnings reflect similar findings from other organisations. A study from UK-based nonprofit ShareAction found that the largest 20 banks in the EU, UK, Switzerland and Norway are not transparent about their green finance activity. Just four banks publish partial information about how they’ve calculated their green finance targets, the report found. Most green finance targets at banks also do not demonstrate how the bank plans to achieve net-zero emissions by 2050.

“It remains unclear from what the banks themselves are reporting and in the targets they are setting whether they are actually providing the finance required to transition our economy and mitigate against the most damaging consequences of climate change,” said Xavier Lerin, senior research manager at ShareAction.

The EU received a C on the Green Central Banking scorecard, largely due to its research and advocacy and financial policy efforts.

This page was last updated November 24, 2023

Share this article