ECB to impose first-ever fines on banks for climate failures

The European Central Bank is set to take the unprecedented step of imposing fines on several lenders for their protracted failure to address the impact of climate change. As many as four lenders face penalties after not meeting deadlines set by the ECB for assessing their exposure to climate risks, according to people familiar with the matter. The imposition of fines still marks an unusually harsh step toward forcing banks to comply with the ECB’s views on how they should manage climate risks. The rigor with which the ECB is pushing banks to manage their climate risk stands in contrast to the approach taken by the Federal Reserve, with Chairman Jerome Powell saying the Fed has “narrow, but important, responsibilities regarding climate-related financial risks.” Banks in Europe have warned that the schism in regulatory environments risks putting them at a competitive disadvantage to their US peers. In a May 8 blog post, he wrote that “a materiality assessment is not just a ‘nice to have’ — knowing your risks is a precondition for being able to address them.” While some banks have started to set aside capital to cover climate-related risks and improved their risk management, Elderson listed several deficiencies, including: