ECB warns banks of capital hit if they fail to tackle climate risk
The European Central Bank has warned banks that failing to tackle their financial risks from climate change in the next two years will result in higher capital requirements and fines, ramping up the pressure after finding widespread areas of concern.
All the large eurozone banks have been sent letters by the ECB identifying 25 areas, on average, where it believes they are falling short in addressing climate risks and setting the 2024 deadline to address the issues.
A “small number” of banks have already had their capital requirements raised by the ECB this year due to concern about their failure to address climate risks sufficiently, the central bank said on Wednesday. This was under what is known as “pillar two” guidance which, while not mandatory, can have a significant effect on the banks’ capital management.
The ECB expects banks to “adequately categorise” climate risks and assess how they impact their activities by March 2023. It wants them to include climate risks in their “governance, strategy and risk management” by the end of next year, and to incorporate climate risks into their internal capital adequacy assessment process and stress tests by the end of 2024.
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This story originally appeared on: Financial Times - Author:Martin Arnold
