ECB fines ABANCA for climate risk failures

The European Central Bank (ECB) has decided to impose periodic penalty payments on Spanish bank ABANCA due to its failure to comply with the central bank’s requirements to adequately identify climate risks. This announcement marks the ECB’s first disclosed fine related to climate risk, following its decision in late 2022 to prioritise climate change in its supervision of banks. Earlier that year, the ECB’s climate stress test revealed an urgent need for banks to incorporate climate risk into their risk management frameworks, highlighting their significant exposure to emissions-intensive industries.

In November 2022, the ECB issued feedback letters to banks, detailing timelines for properly managing their climate-related and environmental (C&E) risks. Where deadlines were unmet, the central bank imposed binding requirements that included periodic penalty payments as an enforcement measure. The ECB stated that the penalty imposed on ABANCA followed requirements set in December 2023, mandating the bank to conduct a materiality assessment of its C&E risks to reinforce its identification of material risks.

ABANCA’s failure to meet this requirement for 65 days in 2024 resulted in a penalty of €187,650. The ECB explained that penalty payment decisions consider factors such as the materiality of the infringement, the breach’s duration, and the supervised entity’s daily turnover.

Earlier this year, the ECB noted significant progress by EU banks in managing climate and nature-related risks, with substantial advancements in practices to identify and monitor these risks. However, it also highlighted areas needing improvement, such as the comprehensive application of sound practices across all exposures, risk categories, and geographical areas.

Following the ABANCA decision, ECB Executive Board Member and Supervisory Board Vice-Chair Frank Elderson commented that this action is part of a broader effort to ensure banks manage their climate and environmental risks adequately, and expressed satisfaction with the strides made by banks, indicating the effectiveness of the ECB’s supervisory efforts.