The European Central Bank (ECB) has announced that it expects all banks to be able to fully manage their climate-related and environmental risks by the end of 2024, or it will step in to take enforcement action.

The deadline was unveiled in a November 2 press release as the ECB published its review into banks’ strategies, governance, and risk management practices. The review, which involved 21 national competent authorities, assessed 186 banks responsible for over 25 trillion euros in assets under management.

The ECB outlined it expects banks to adequately categorize climate and environmental risks and conduct a full assessment of their impact on the banks’ activities by the end of March 2023. By the end of 2023, the central bank expects banks to include climate and environmental risks in their governance, strategy and risk management. In a final step, by the end of 2024, banks are expected to meet all remaining supervisory expectations on climate and environmental risks as outlined in 2020.

It comes as the ECB review found that 96% of the banks surveyed had “blind spots” in their identification of climate-related and environmental risks regarding key sectors, regions, and risk drivers, and that when banks do assess the risks “they are not yet able to grasp the full magnitude as most do not actively collect granular counterparty and asset-level data.”

The ECB study also found that while most banks’ strategy documents reference climate considerations, banks rarely were found to have shifted revenue sources to address climate concerns. It was further highlighted that although many banks have phased out activities such as coal power generation, it is still unclear how these initial steps shelter banks’ business models from climate-related consequences and environmental degradation in the future.

“Time is of the essence,” said ECB Executive Board Member Frank Elderson. “There can be no more questions about responsibilities. Banks must have risks fully measured and priced. Boards need to have set their banks on an unequivocal course to longstanding resilience,” he stressed.