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ECB executive flags climate and nature risks to financial stability
Frank Elderson said the ECB is stepping up monitoring of banks' exposure to nature-related “ecosystem services” as disasters linked to global heating become more frequent.
The European Central Bank is warning that the climate emergency and the breakdown of nature are becoming a growing risk to financial stability, according to ECB executive board member Frank Elderson, speaking in an interview covered by The Guardian.
Elderson said the ECB, which acts as a lender of last resort in the euro area, is stepping up its monitoring of financial risks tied to damage to “ecosystem services,” which he described as nature related processes or assets that support human activity. He argued these services are declining rapidly and that regulators need to understand how that dependency shows up in bank exposures.
The Guardian reports that wildfires across parts of France and Spain have intensified amid record-breaking temperatures, destroying land, businesses, and homes, with broader economic fallout. Elderson said the rising frequency of natural disasters linked to global heating poses a threat to financial stability, while also noting that assessing the risk from ecosystem service collapse is more complex than evaluating a single extreme weather event.
He added that nature related risks can affect credit risk and economic variables such as growth and inflation, and could pose longer-term financial instability. Elderson also said the ECB needs more work to assess how these exposures could translate into material economic and financial risks for the banking system.