ECB official warns climate crisis poses growing threat to ‘core financial stability’
Exclusive: As wildfires rage, Frank Elderson says more work needed to assess risk from collapse of ecosystem services A senior policymaker at the European Central Bank has said the climate emergency and the breakdown of nature poses a dramatically growing risk to the global economy. Frank Elderson, a member of the ECB’s executive board, said the eurozone lender of last resort was stepping up its…
Frank Elderson, a senior policymaker at the European Central Bank (ECB), has warned that the climate crisis poses an increasingly significant threat to global financial stability. As a member of the ECB's executive board, Elderson emphasized that the eurozone lender of last resort is intensifying its monitoring of financial risks associated with the destruction of "ecosystem services," which encompass nature-related processes or assets that support human activity.
These services, such as water, energy, transportation, and habitats for marine life, are not stable and are in rapid decline, according to Elderson.
Elderson highlighted the growing risk of natural disasters linked to global heating, stating that more work is needed to assess the risk from the collapse of ecosystem services. He explained that nature-related risks can have material economic and financial consequences, impacting credit risk, growth, inflation, and potentially leading to financial instability over the long term.
The ECB has initiated a program to evaluate how escalating damage to ecosystem services could expose the financial system to risk, with the aim of publishing analysis later this year on the potential credit loss dynamics for the eurozone's banks.
Elderson, a Dutch lawyer and central banker, played a key role in establishing the Network for Greening the Financial System (NGFS) in 2017, along with Mark Carney and François Villeroy de Galhau. He served as the founding chair of the group, which comprises 114 global central banks and financial supervisors working on climate risk management.
Despite pushback under the US presidency of Donald Trump, with the withdrawal of the US from the NGFS, Elderson remains convinced that banks across Europe recognize the relevance of addressing climate and nature-related risks. He stated that it would be difficult to find a European bank that honestly believes this issue is not pertinent.
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