The European Central Bank (ECB) announced a decision to impose periodic penalty payments on Spanish bank ABANCA over its failure to comply with the central bank’s requirements to sufficiently identify climate risks.
The announcement marks the first climate risk-related fine disclosed by the ECB, following its decision in late 2022 to step up efforts to address climate change as one of the central bank’s top priorities for its supervision of banks. Earlier that year, the ECB’s climate stress test indicated that banks urgently need to accelerate the incorporation of climate risk into their risk management frameworks, and that banks remain heavily exposed to emissions-intensive industries.
In November 2022, following the stress test results, the ECB sent feedback letters to banks, outlining timelines for adequately managing their climate-related and environmental (C&E) risks, and in cases where the deadlines were not met, the central bank imposed binding requirements providing for the accrual of periodic penalty payments as an enforcement measure.
According to the ECB, the new penalty follows requirements set in December 2023 for ABANCA to conduct a materiality assessment of its C&E risks, requiring the bank to reinforce its identification of the material C&E risks to which it is or might be exposed.
The ECB said that ABANCA failed to meet the materiality assessment requirement for 65 days in 2024, leading to a decision to impose periodic penalty payments of €187,650 on the Spanish bank. The ECB said that penalty payment decisions are based on factors including the materiality of the infringement, the duration of the breach and the daily turnover of the supervised entity.
Earlier this year, the ECB said that EU banks have made significant progress in addressing and managing climate and nature-related risks, with major increases in advanced practices in place to identify, monitor these risks made by banks in just the past few years, while still noting some areas of required improvement, including a need by many banks to more completely apply sound practices in their climate and environmental risk management frameworks across all relevant exposures, risk categories and geographical areas.
In an interview following the ABANCA decision, ECB Executive Board Member and Supervisory Board Vice-Chair Frank Elderson said:
“This was part of a broader effort to get the banks we supervise to adequately manage their climate and environmental risks, adhering to a thorough escalation process. And we are happy to see that banks have made big strides in this area, which shows that our supervisory efforts have been effective in the vast majority of cases.”
