Frank Elderson of the ECB emphasizes the critical role of international cooperation in addressing nature-related risks and their impact on the economy and financial stability.
Frank Elderson, Member of the Executive Board of the European Central Bank (ECB) and Vice-Chair of the ECB Supervisory Board, delivered opening remarks at the NGFS Annual Plenary Event panel discussion on “Incorporating nature into supervisory practices”.
He highlighted the unprecedented turbulence of current times, marked by conflicts, erosion of international rules, and declining cooperation across sectors. Despite these challenges, the event demonstrated the importance of global collaboration in addressing climate and nature crises.
Mr. Elderson emphasized that the climate and nature crises significantly impact the economy and financial systems, making international cooperation essential. The Network for Greening the Financial System (NGFS) remains a key forum for sharing best practices, knowledge, and advancing supervisory efforts.
He noted that nature underpins economic activity, with estimates indicating that up to half of the world’s GDP depends on biodiversity and ecosystem services. In the euro area, nearly 75% of bank lending supports firms dependent on ecosystem services. Degradation of nature, driven by human activity, is depleting resources at a rapid rate and impeding climate mitigation and adaptation efforts.
Examples of national actions include Brazil’s central bank drafting a risk document in 2021, Hungary’s project with the OECD on biodiversity risks, and Switzerland’s new circular on climate and nature-related financial risks. The upcoming NGFS guide will offer practical recommendations on metrics, data, scenario analysis, and stress testing for nature-related risks.
The ECB has been proactive, with nearly 75% of banks now assessing nature-related risks quantitatively, though further integration into risk management is needed. The ECB collaborates with academic experts to better understand risks, such as water scarcity, which could threaten up to 24% of euro area economic output.
Research from other institutions shows how ecosystem disruptions can influence inflation, real estate, and credit risks. For example, environmental degradation in Spain’s Mar Menor has caused over €4 billion in real estate losses, and a McKinsey stress test indicates that orderly transitions could significantly reduce credit risks in African banking systems.
Mr. Elderson stressed that the effects of nature loss are extensive, with 80% of arable land affected globally and food productivity expected to decline by 12% by 2040, raising prices by up to 30%. The IPBES report warns that biodiversity loss is a major threat to businesses and economic stability.
He called for continued collaboration among central banks, supervisors, banks, and researchers, emphasizing NGFS as the platform to develop a comprehensive toolkit for managing nature-related risks. The message was clear: inaction is never neutral, and proactive measures are essential to safeguard financial resilience amid the ongoing nature crisis.
Thank you for your attention and participation in this critical discussion.
