ECB Issues Deadlines to Banks for Climate and Environmental Risk Management

The European Central Bank (ECB) announced a set of deadlines for banks to address climate and environmental risks, with complete alignment with expectations to identify and manage risks necessary by 2024's end.

The new dates were announced in conjunction with the announcement of the results of the ECB's thematic examination of banks' strategies, governance, and risk management frameworks, which examined whether banks sufficiently identify and manage climate risks and environmental risks such as biodiversity loss. The evaluation included 186 banks, including "major banks" directly supervised by the ECB and "less significant banks" supervised by national authorities.

While many banks have implemented fundamental policies, 85% lack advanced methodologies and granular information on climate and environmental hazards, and 96% have "blind spots" when it comes to spotting these risks.

As a result of the study, the ECB has established institution-specific timelines for achieving complete compliance with its supervisory objectives, as specified in its "Guide on climate-related and environmental risks" for 2020. The ECB also outlined a set of minimum milestones for all banks to achieve, such as having a comprehensive materiality assessment of the impact of climate and environmental risks on their activities by March 2023, incorporating climate and environmental risks into their governance, strategy, and risk management by the end of 2023, and meeting all remaining expectations, such as integrating climate and environmental risks into stress testing f.

The ECB stated that it will closely monitor the deadlines and that if required, enforcement action will be taken.