Supervisors are worried about the solvency of polluting lenders, and have threatened fines or capital charges.
Nine in ten of the eurozone’s biggest banks aren’t properly aligned with the upcoming transition away from fossil fuels, the European Central Bank has said in a study published today (23 January).
Banks that fail to take climate change seriously could go insolvent, supervisors said, after previously threatening daily fines for the worst offenders.
“Among the 95 significant institutions analysed, a staggering 90% are found to be misaligned” with emissions targets of the Paris climate change agreement, said the study, referring to the largest euro area banks which the ECB is responsible for supervising directly.
Seven in ten face the risk of lawsuits because they failed to adapt their lending practices despite publicly committing to the Paris deal, and there’s a “potential impact on solvency” for those with significant loans to polluting sectors, the report added.
The power sector is the main culprit, the ECB says – with corporations dragging their feet on phasing out carbon-intensive tech, insufficient funds for renewable energy, and ongoing finance for oil and gas production outside the eurozone badged as a particular concern.
The EU has passed an ambitious package of environmental legislation known as the green deal aiming to cut emissions by 55% by 2030, and ultimately to zero.
Regulators hope that private finance will be able to shoulder some of the enormous cost of that change – and worry that banks that continue lending to carbon-intensive sectors could find themselves lumbered with mass defaults.
Frank Elderson, vice-chair of the ECB’s supervisory arm, has previously threatened to sanction lenders that fail to pay attention to environmental concerns. He’s also berated legislators for including a carveout for banks from new environmental disclosure rules.