ECB Gives Banks Deadlines to Manage Climate and Environmental Risks

Banks have been given until the end of 2024 to meet the European Central Bank’s (ECB) full supervisory expectations on climate and environmentalEnvironmental criteria consider how a company performs as a steward of nature. risks, with interim deadlines

The European Central Bank (ECB) set a series of deadlines for banks to deal with climate and environmentalEnvironmental criteria consider how a company performs as a steward of nature. risks, the ECB announced today, with full alignment with expectations to identify and manage risks required by the end of 2024.

The new deadlines were unveiled with the release of the results of the ECB’s thematic review into banks’ strategies and their governanceGovernance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. and risk management frameworks, examining whether banks adequately identify and manage climate risks as well as environmentalEnvironmental criteria consider how a company performs as a steward of nature. risks such as biodiversity loss. The review covered 186 banks, including “significant banks” under direct ECB supervision and “less significant banks” supervised by national authorities.

The review revealed that while many banks have put basic practices in place, 85% lack sophisticated methodologies and granular information on climate and environmentalEnvironmental criteria consider how a company performs as a steward of nature. risks, and that banks significantly underestimate the breadth and magnitude of these risks, with 96% having “blind spots” in identifying them.

Following the review, the ECB said that it has set institution-specific deadlines aimed at achieving full alignment with its supervisory expectations, which it outlined in its 2020 “Guide on climate-related and environmental risks.” The ECB also laid out a set of minimum milestones for all banks to reach, including expectations to have in place comprehensive materiality assessment of the impact of climate and environmentalEnvironmental criteria consider how a company performs as a steward of nature. risks on their activities by March 2023, the inclusion of climate and environmentalEnvironmental criteria consider how a company performs as a steward of nature. risks in their governanceGovernance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights., strategy and risk management by the end of 2023, and meeting all remaining expectations, including having climate and environmentalEnvironmental criteria consider how a company performs as a steward of nature. risks integrated into stress testing frameworks, by the end of 2024.

The ECB said that it will closely monitor the deadlines, and warned that enforcement action will be taken if necessary.

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