ECB warns climate crisis threatens financial stability
A senior official of the European Central Bank (ECB) has warned that the worsening climate crisis and the destruction of nature pose increasing risks to global economic and financial stability.
Frank Elderson, a member of the ECB Executive Board, said the bank was strengthening its monitoring of financial risks linked to the degradation of ecosystem services, which are natural processes and resources that support economic activity.
According to him, ecosystem services are declining rapidly, making climate and nature-related risks increasingly relevant to the banking sector and the wider economy.
He said the growing frequency of climate-related disasters, including wildfires, floods and heatwaves, could undermine financial stability by affecting credit risks, economic growth, inflation and long-term price stability.
Elderson noted that assessing nature-related risks was more complex than evaluating the impact of individual extreme weather events because many industries depend on healthy ecosystems in different ways.
He explained that ecosystem services include freshwater supplies, hydropower generation, transportation, marine habitats that sustain fisheries, and recreational resources.
The ECB plans to publish a study later in 2026 examining how ecosystem degradation could increase credit losses for banks across the eurozone.
Elderson stressed that protecting nature was no longer an environmental issue alone but a core economic and financial concern.
He said, “If you destroy nature, you destroy the core on which our economies depend.
This is core economics, core financial stability and core price stability.”
The ECB has been expanding its work on climate-related financial risks through the Network for Greening the Financial System (NGFS), a coalition of central banks and financial supervisors established in 2017.
Although the United States withdrew from the network under President Donald Trump, Elderson said European banks continued to recognise the importance of managing climate and nature-related financial risks.
He added that it would be difficult to find a major European bank that still considered such risks irrelevant.
The warning comes as severe wildfires continue to affect parts of France and Spain following record temperatures, highlighting the growing economic costs of climate-related disasters alongside their human impact. Source: Richard Partington, The Guardian.
