ECB started issuing fine notices to banks not meeting climate expectations

New York: The European Central Bank has started issuing fine notices to lenders not meeting its long-defined expectations on disclosing and managing climate risk, Irene Heemskerk, the head of the ECB's climate change centre, told Reuters on Tuesday.

The ECB has long complained that banks are not meeting its supervisory expectations on climate issues and warned there would be financial consequences if interim deadlines or its year-end target date are missed.

"We already said that if banks don't comply, we won't shy away from enforcement measures," Heemskerk told a Reuters Newsmaker event. "Some banks did not meet this interim deadline on materiality assessment or other (matters), and we already issued periodic penalty payments."

Actual payments do not immediately kick in, but banks will have to pay up if they fail their remedial deadlines, Heemskerk said.

"And that fine is dependent on your profits, or on the size of your bank, so that could be pretty material," Heemskerk said.

Appointed in mid-2021, Heemskerk has been a key figure in defining and coordinating the ECB's efforts in tackling climate change since policymakers approved an action plan as part of a broader strategy review.

While some of the ECB's efforts involved monetary policy, it has primarily focused on banking supervision as it oversees just over 100 of the 20-nation euro zone's biggest lenders.

Although banks have made substantial progress, the ECB has also expressed frustration over the years with how slowly they moved, and said last year that lenders talking the most about climate issues are doing the least.

But risks to banks and the broader economy are immense, the ECB said earlier on Tuesday in an Economic Bulletin article.

"If the world follows its current emission pathway and continues to exert significant pressure on biodiversity (adverse scenario), losses for euro area banks could be on average almost three times higher than they would be under a Paris-aligned, resource-efficient future scenario," it said.

The biggest losses would occur in Germany, given how dependent the country's strongest economic sectors are on biodiversity levels, the ECB said.