(Bloomberg) --The European Central Bank wants finance executives to know they'll be held to account for the industry's continued failure to adequately manage climate and environmental risks.
According to Frank Elderson, executive board member of the ECB, the ESG risk building in some bank books "increasingly calls into question the fitness and propriety" of the executives in charge.
Banks are taking too long to treat climate and environmental risks as a material threat that can impact their finances, according to the ECB. Elderson's speech, given five years after the European Union started rolling out its sustainable finance agenda, represents one of the ECB's sternest warnings yet on the subject.
Banks that don't meet the ECB's risk management requirements for climate and the environment "will have to pay a penalty for every day the shortcoming remains unresolved," Elderson said on Tuesday.
The comments add to a drumbeat of warnings from EU officials intent on getting the bloc's finance industry to step up its ESG risk management. Last month, the European Banking Authority said it was revising the framework that sets capital requirements so that lenders reflect environmental and social risks in so-called Pillar 1 buffers.
The new rules are needed because environmental, social and governance factors are "changing the risk profile for the banking sector," the EBA said on Oct. 12.
Elderson said the ECB expects banks to treat climate and environmental risk as they would "any other material risk."
The requirement, which is laid out in Europe's Capital Requirements Directive, gives banks in the EU until the end of next year to comply, though the ECB has set a number of interim deadlines.
In the course of its supervision of the banking sector's exposure to climate and environmental risk, the ECB has "seen a number of good practices," Elderson said. However, "at present, none of the banks under our supervision fully meet all our expectations," he said.
