Frank Elderson: From climate and nature risks to economic resilience and competitiveness

In an era of significant economic and geopolitical shifts, climate change and nature degradation remain constant forces shaping our societies and business environments. The summer of 2026 bore this out, as Europe experienced its hottest summer on record, accompanied by extreme droughts, wildfires, and water scarcity. These events underscored the continent's unparalleled vulnerability to such phenomena.

With Europe warming at a rate more than twice the global average, the consequences were dire, leading to tens of thousands of excess deaths due to heat-related illnesses. The economic ramifications were equally severe, with industries, transport, and energy production facing disruptions. Water scarcity not only impacted daily life but also hindered manufacturing, transport, and energy generation.

This summer served as a stark reminder that nature's health is intrinsically linked to economic prosperity, with healthy ecosystems providing vital services that underpin daily economic activities.

The summer's events serve as a clarion call to bolster economic resilience in the face of increasing climate and nature-related disruptions. It is no longer sufficient to view these issues as isolated events but rather as integral components of our economic systems. The question now shifts from addressing individual incidents to understanding how these shocks accumulate and interact over time.

This shift is echoed by Simon Sharpe, who emphasized that while economists and risk managers must be cautious not to overestimate or underestimate risks, the real challenge lies in accurately assessing and mitigating the compounded effects of climate and nature-related hazards.

Central banks and financial supervisors face the daunting task of navigating this uncertainty. They must enhance their understanding of how climate-related risks evolve and integrate this knowledge into their risk management frameworks. The summer of 2026 serves as a stark reminder that the economic impact of such events can be far-reaching, affecting not only growth but also inflation dynamics.

Moreover, these risks transcend national borders, influencing international trade, migration patterns, and global financial stability. As central banks strive to maintain price stability and ensure the soundness of the banking sector, they must incorporate macroeconomic models that accurately reflect the impact of climate change and nature degradation.

Only by doing so can they effectively safeguard economic stability and foster long-term economic prosperity in an increasingly volatile world.