ECB Fines ABANCA: A Wake-Up Call on Climate Risk and Financed Emissions

ECB Imposes Fine on ABANCA for Climate Risk Failures

In a clear signal to the financial sector, the European Central Bank (ECB) this week imposed periodic penalty payments of €187,650 on ABANCA for failing to adequately assess and document climate-related and environmental (C&E) risks. Banks are increasingly expected to both recognise and actively manage climate risks within their activities and portfolio. The ECB's imposed fine has now shown that financial regulators are prepared to enforce banks' climate obligations if needed.

Spanish bank ABANCA fell short of the ECB’s December 2023 requirements, failing to complete a materiality assessment of its climate risks for 65 days in 2024.

The ECB’s penalties, which accrue per day of non-compliance, are part of a broader supervisory framework designed to ensure financial institutions identify, assess, and disclose their exposure to climate-related risks. While ABANCA can challenge the decision at the Court of Justice of the European Union, the message is clear: climate risk management is no longer optional for banks.

Climate Litigation Against Financial Institutions

Financial institutions are not only at risk of regulatory enforcement. The ECB's actions align with ongoing climate litigation cases targeting financial institutions. For example, in the Netherlands, environmental group Milieudefensie has brought a lawsuit against ING, arguing that the bank’s financing practices contribute to climate harm. These cases, along with ECB enforcement actions, reflect a broader shift: banks are increasingly held accountable for the climate impacts of their investment and lending decisions by a variety of actors.

Banks can no longer treat climate risks as abstract or secondary. They have to be framed as material, quantifiable, and legally significant. For those tracking climate litigation, the lesson is clear: financial institutions are a critical frontier for legal and regulatory action on climate change.

The Role of Financed Emissions

Regulatory and litigation action against banks and other financial institutions does more than target a single unit's compliance failure. It touches on a far deeper, systemic issue: the concept of 'financed emissions'. These are the greenhouse gas (GHG) emissions that financial institutions trigger indirectly through their lending and investment decisions.

Financed emissions refer to the GHG emissions attributed to a financial institution via the activities of its investees or borrowers, i.e., the companies it lends to or invests in. In the banking and finance sector, financed emissions form part of what regulators call a bank’s Scope 3 emissions. They sit in the value chain outside the institution’s direct operations.

For example, if a bank lends funds to an oil‑and‑gas company that emits 1 million tonnes CO₂ e in a year, a portion of those emissions may be attributed to the bank based on its share of the financing. This means that for banks, financed emissions are by far the largest component of their total emissions across the value chain. Beyond litigation and regulatory risk, financing high-emitting sectors also exposes banks to transition risks. Companies in these sectors are likely to be forced to adjust their business models or decline in value while global warming mitigation efforts accelerate. This, in turn, can affect their ability to repay loans and their broader financial stability.

Clearly, the financial sector finds itself at a critical junction. By financing companies, projects or assets with substantial GHG footprints, banks become indirect participants in the climate crisis. In turn, they expose themselves to accompanying risks. Regulatory actions like the ECB’s penalty against ABANCA send a message: banks must account for the climate impacts of their financing activities. Let's see if courts will come to the same conclusion as these climate cases proceed.