After years of pressure and warnings, Eurotower seems determined to resort to more powerful instruments. For the first time, it could impose fines on 4 European institutions that have not complied with the deadlines to integrate in their operational management the guidelines on the measurement and monitoring of the financial risks associated with the climate crisis
Fines for inadequate climate risk detection can reach up to 5% of average daily income
For the first time, the European Central Bank is preparing to impose fines on at least four banks for not carrying out adequate climate risk assessment. A “quality leap”: So far, the ECB had only resorted to pressures and warnings to force the institutions under its supervision to comply with the guidelines on measuring and monitoring the impact of the climate crisis on assets. The 4 banks would be the only “recidives” of 19 non-compliant institutions identified last December.
Officials are still pending from the Frankfurt authority, both for the number and identity of the banks involved and for the fines. Technically, this can reach up to 5% of the average daily income and accumulate until the institution under sanction complies with its climate risk detection obligations. However, the Eurotower could opt for more than symbolic fines or recognize a series of mitigators to encourage banks to re-align quickly.
“Banking supervision and regulation have no climate policy objectives. But they set the framework within which banks must measure and properly assess climate and environmental risks, and build resilience. This creates transparency and stability at a time when the climate crisis requires a major transformation of European economies”, stressed Claudia Buch, head of the ECB’s supervisory board since 2023.
To improve the assessment of climate risk for financial operators, the European Central Bank has launched several initiatives in recent years. Since 2022, it has conducted climate stress tests with cognitive value, whose objective is to identify the weaknesses of the European financial system in the face of possible future scenarios characterised by extreme climate events and the slow onset impact of climate change. In parallel, it provided EU banks with a set of parameters and guidelines for the detection of climate risk, as well as deadlines within which to integrate these tools into the operational management by the institutions.
In January 2024, Eurotower announced that in the next two years it will deepen the impact and risks of the transition to a green economy, the increasing physical impact of climate change and how measures to adapt to a warmer planet affect the economy, and the risks arising from the loss and degradation of nature, how they interact with climate risks. Three areas whose results will complement the current provisions on banking supervision.
