The European Central Bank will impose financial penalties on banks that take too long to address climate change risks in their business, a senior official has said.
Frank Elderson, vice-president of banking supervision at the European Central Bank (ECB), said in a speech in Brussels on Tuesday that lenders that fail to remedy their environmental deficiencies by a certain date "will have to pay a penalty for each day the shortcoming is not resolved".
He didn't specify how much the potential fines would be.
In November 2020, the ECB published a catalogue of recommendations for banks to identify and manage climate and environmental risks as part of their governance, strategy and overall risk management mainly lodged with their borrowing clients.
For example, one recommendation asks banks to quantify the amount or percentage of carbon-related assets in each portfolio.
Specific deadlines have been set for each financial institution to meet these expectations by the end of 2024 at the latest, in several stages.
However, "we found that a number of banks failed to deliver on their promises by the interim deadline" of March 2023, according to Elderson.
Three years since the publication of the ECB's - non-binding - recommendations, these banks are still silent on "the impact of climate and environmental risks on their portfolios", he said, despite global warming advancing at pace.
With two weeks to go before the most COP climate summit since the 2015 Paris Agreement, it's "much less certain that we'll manage to limit global warming to below the two-degree Celsius mark [as set in Paris], let alone 1.5 degrees, which is increasingly out of reach", Elderson said.
In his view, the "threat of a disastrous scenario" in which global warming exceeds two degrees "is very real".