EU: ECB is considering whether to impose fines on banks for failure to address the impact of climate change

On 29 May 2024, Bloomberg reported (see here, requires a subscription) that the European Central Bank (ECB) was preparing to impose fines on several lenders for failures to meet deadlines set by the ECB for assessing their exposure to climate risks. According to Bloomberg, the fines had not been finalised yet but indicated that these could accrue on a daily basis and amount to as much as 5% of a lender’s daily average revenue. 

On 5 June, in an interview with Spanish publication Cinco Dias (see here), Kerstin af Jochnick, a member of the Supervisory Board of the ECB, was asked whether any banks had been fined already. Ms af Jochnic replied that: 

“We have notified a few banks that, based on our current assessment, they have not met the interim milestones, which means they face the prospect of having to pay a so-called pecuniary penalty. Supervisors will need to assess the documents that banks submit and the total number of days that they might have failed to comply past the deadlines we gave them. This will form the basis for any potential penalty, which would need to be decided upon by the Supervisory Board. So it’s a process that is not over yet.” 

In January 2024, the ECB published a study, which analysed 95 EU banks covering 75% of euro area loans, in which it found that the credit portfolios of roughly 90% of banks were “substantially misaligned with the goals of the Paris Agreement”.  

According to Frank Elderson, member of the Executive Board and Vice-Chair of the ECB Supervisory Board, in a related blog post: 

“The misalignment with the EU transition pathway can lead to material financial, legal and reputational risks for banks … It is crucial for banks to identify, measure and – most importantly – manage transition risks, just as they do for any other material risk.” 

Mr Elderson also indicated that there is a need for banks to “do more work with their counterparties to ensure that the companies they finance do not prevent them from living up to their net-zero commitment."  This is particularly in light of the fact that climate litigation has skyrocketed in recent years, with legal action increasingly targeting corporates and banks.

One of the key asks is that banks should adopt Paris-aligned transition plans with realistic, transparent, and credible goals that can be implemented in a timely manner. These should incorporate concrete intermediate milestones from now until 2050, with key performance indicators that allow management bodies to monitor and act upon risks. 

For more information on the ECB report and Mr Elderson's comments, see our previous blog post.