With the introduction of supervisory sanctions, that is, additional funds, European banks were faced with not adopting effective methods for adapting to climate change. The ECB issued the warning yesterday after evaluating the results of a survey it conducted with 21 national authorities on 186 banks with total assets of €25 trillion. euros, which revealed that “banks are still far from adequately managing climate and environmental risks.”

This is the first such warning from the Central Bank, since the stress tests conducted in July last year did not contain clear supervisory sanctions.

The ECB has set a specific, extended adaptation timetable for banks to gradually meet all supervisory expectations set out in its climate and environmental risk guidance in 2020. Initially, by March 2023, banks will have to “adequately classify climate and environmental risks.” and conduct a full assessment of their impact on their operations.”

In the second phase, scheduled no later than the end of 2023, the ECB expects banks to factor climate and environmental risks into their corporate governance, strategy and risk management. Some banks, the ECB said in a statement yesterday, have already begun planning the transition to a low-carbon economy and working with their clients. However, a wait-and-see approach still prevails in most banks. For example, banks do not set interim risk-taking targets or limits to meet their long-term strategic commitments, or set them in such a way that their direct impact on the bank’s operations is negligible. In the final phase, by the end of 2024, banks are expected to meet all remaining supervisory expectations for climate and environmental risks outlined in 2020, including full integration into the internal capital assessment (ICAAP) process and stress testing.