(Bloomberg) -- The European Central Bank has stepped up its efforts to prepare lenders for the fallout from climate change by warning firms they face even more fines if they don’t sufficiently address the risks ahead.
A “small group of outliers” faces periodic penalty payments after the ECB found that they’re still missing “foundational elements for the adequate management of climate and nature-related risks,” said Frank Elderson, a member of ECB’s Executive Board.
Bloomberg reported in June that banks faced a second wave of such fines.
The ECB has steadily ramped up pressure on banks to ensure they can contend with losses resulting from extreme weather or carbon-intensive companies having difficulty paying back loans. While many banks say they’re working on the issue, the watchdog’s tough approach has been a key source of friction with the industry.
The ECB is still engaging with banks over an earlier round of fines it may impose on lenders that didn’t properly assess whether they face a material impact from climate and nature-related risks, according to Elderson. “The process is ongoing to determine whether penalties will be charged,” he said in a speech in Amsterdam on Friday.
Bloomberg reported in May that as many as four lenders face penalties after not meeting deadlines set by the ECB. The fines rack up every day and can amount to as much as 5% of a lender’s daily average revenue.
The ECB determines how many days the banks failed to comply and then sets a penalty amount to be paid. The ECB’s Supervisory Board would still need to discuss the matter and the lenders can appeal.
The new wave of potential fines relates to the ECB’s request that banks needed to “clearly include” climate- and nature-related risks in their governance, strategy and risk management by the end of last year, Elderson said. The banks face penalties on this front if they fail to deliver on the requirements in a timely fashion, he said.
The ECB will threaten banks with yet more penalties if they don’t meet a further deadline for having practices in place by the end of this year regarding the “sound” management of climate risks, Elderson said.
“Thereafter, banks will have to keep updating their practices in accordance with advances in data availability, methodologies and legislative and regulatory requirements,” he said. “Banks need to ensure that their risk management practices are and continue to be commensurate with the magnitude of the climate and nature-related risks that they face.”
©2024 Bloomberg L.P.
