The Bank of Spain published closing remarks by Deputy Governor Soledad Núñez on water as a strategic asset and a source of economic and financial risk, arguing that water availability and ecosystem degradation are increasingly relevant over horizons used for monetary policy and financial stability analysis. She cited European Central Bank evidence that 72% of euro area firms show significant dependence on at least one ecosystem service, with most dependencies concentrated on water, and warned that combined climate and water pressures can create “compound risks” that amplify production losses, supply-chain disruptions and financial-system stress. Eurosystem models were referenced as suggesting water-scarcity shocks could generate larger economic losses than isolated climate shocks due to multisector transmission and faster propagation. For the Bank of Spain, the speech highlighted three main channels: potential persistent inflation effects via food and agricultural prices; rising credit risk in water-exposed sectors such as agriculture, food, textiles, tourism and parts of manufacturing, with ECB-based analysis suggesting close to 20% of loan portfolios are linked to activities sensitive to water degradation and quality; and the need to strengthen financial institutions’ capacity to assess and manage water risk despite current data limitations, including the need for high-resolution spatial metrics. The remarks described ongoing work by the European Central Bank and the Bank of Spain to incorporate hydrological and environmental information into macroeconomic and financial models, develop integrated climate–nature scenarios, and collaborate with the Network for Greening the Financial System, the Organisation for Economic Co-operation and Development and scientific institutions. Núñez also underscored that central banks are not responsible for water policy choices, but need to anticipate how water-related changes affect the economy and the financial system, noting parallel European Central Bank work to support consistent due diligence and risk-governance approaches for water risk in line with international recommendations.
Bank of Spain 2025-11-28
Bank of Spain links water-related risks to inflation and credit risk citing ECB tools that map around 20% of loan portfolios to water-sensitive activities
The Bank of Spain's Deputy Governor Soledad Núñez emphasized water as a strategic asset and a source of economic and financial risk, impacting monetary policy and financial stability. She noted water scarcity could cause significant economic losses, with 72% of euro area firms dependent on ecosystem services, primarily water. The Bank of Spain and the European Central Bank are working to integrate hydrological data into financial models and enhance risk management in water-exposed sectors.