5th Dec 2023

ECB sets 2024 deadline for European banks to deal with climate risks

  • Out of the banks reviewed 96 percent are not aligned with the ECB’s climate requirements (Photo: ECB)
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The European Central Bank (ECB) has set a deadline of the end of 2024 for banks to green their lending operations and meet climate requirements.

On Wednesday (2 November) the ECB presented a review of 186 European banks. And although some progress has been made, "the glass is not even half-full," senior ECB official Frank Elderson wrote in a statement.

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As the ECB's green chief Elderson is responsible for pushing banks to identify which assets and clients are exposed to climate change, or profit from natural destruction.

Out of the banks reviewed 96 percent are not aligned with the ECB's climate requirements.

"Where banks do assess risks, they are not yet able to grasp the full magnitude as most do not actively collect granular counterparty and asset-level data," Elderson wrote.

The risk is these banks will be caught off guard as more businesses are hit by extreme weather evens, or are forced out of business by green legislation.

"Most banks have thus not yet answered the question of what they will do with clients who may no longer have sustainable revenue sources because of the green transition," he noted. "In other words, too many banks are still hoping for the best while not preparing for the worst," he wrote.

To ensure banks can handle losses from extreme weather or polluting companies pushed out of business by green legislation, the ECB has now tasked commercial banks to map out the climate impact of businesses they have invested in by March next year.

The ECB has also imposed "binding qualitative requirements" on more than 30 banks in its annual review which will impact how much cash individual lenders are required to keep on hand, which will be higher if the exposure to climate risk is extensive.

Banks have until 2024 to meet all the ECBs climate requirements.

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