In introductory remarks at an MNI webcast, European Central Bank Executive Board member Frank Elderson set out how the ECB is embedding climate and nature-related risks into monetary policy and banking supervision as “policy takers”, and indicated that supervisors will continue to use binding measures, including potential periodic penalty payments, to enforce banks’ compliance with climate and nature risk management expectations. On monetary policy, the remarks pointed to progress in incorporating climate considerations into macroeconomic analysis and to the ECB’s climate “tilt” in corporate bond purchases towards better-performing issuers, noting that the last remaining purchases were suspended at the start of 2025 but that any future corporate bond purchases for monetary policy purposes would take the established tilt direction as a minimum benchmark. Technical work continues on incorporating climate considerations into the collateral framework for lending operations, alongside a commitment to regularly review and adapt measures to ensure they meet monetary policy objectives while supporting the decarbonisation path consistent with the Paris Agreement and the European Union’s climate neutrality objectives, and to look into additional nature-related challenges within the ECB’s mandate. On supervision, the ECB reiterated that banks were required by end-2024 to have practices in place for the sound management of climate and nature-related risks, building on supervisory expectations set out in a 2020 guide and interim remediation deadlines. Following the March 2023 interim deadline, the ECB imposed binding supervisory decisions on 28 banks, with 22 facing the prospect of periodic penalty payments if shortcomings were not remedied by specified dates, and noted that processes to determine whether penalties have been incurred remain ongoing for a few banks. For the end-2023 interim deadline, outliers were issued binding supervisory decisions in autumn 2024; the ECB said it will proceed “in exactly the same way” for the final end-2024 deadline, including expecting climate and nature risks to be reflected in stress-testing frameworks using plausible baseline and adverse scenarios aligned with scientific evidence.
European Central Bank 2025-02-12
European Central Bank reiterates climate and nature risk integration and signals penalty-backed supervision after banks’ end-2024 deadline
ECB Executive Board member Frank Elderson discussed integrating climate and nature-related risks into monetary policy and banking supervision, emphasizing binding compliance measures. The ECB will suspend corporate bond purchases in early 2025, with future purchases favoring better-performing issuers. Banks must manage climate risks by end-2024, facing penalties for non-compliance, and stress-testing frameworks must use scientifically aligned scenarios.