European Central Bank to Impose Fines on Banks for Failure to Address Climate Change

It has been reported that the European Central Bank will be imposing fines on as many as four lenders due to “not meeting deadlines set by the ECB for assessing their exposure to climate risks.”  Specifically, ECB regulations require “banks to assess whether they are--or will be--exposed to material risks, and that they reflect that in their capital reserves” and “[t]he ECB has . . . [included] climate and environmental-related risk” in this assessment.  The banks subject to these fines have not yet complied with these requirements.

However, it appears that the ECB--despite the planned imposition of these fines--is adopting a relatively gentle approach to enforcement.  The ECB stated that it had originally threatened eighteen banks with penalties--but only four are now facing a penalty.  This suggests that the vast majority of the banks that the ECB engaged with--more than 75%--adapted their behavior in response to ECB pressure and avoided penalties.  Further, until the size of the penalties are announced, it is not clear whether the penalties will be assessed at a significant amount to promote deterrence or will instead be more symbolic than punitive.  

Regardless, the fact that a regulator is now imposing fines on banks for a failure to take climate risks into account is highly significant.  Still, this is a European regulator rather than an American one--and the European Union and associated institutions have been adopting more stringent approaches to climate change than their counterparts in the United States.  Indeed, this planned penalty only reinforces that regulatory divergence.