Frank Elderson, ECB Vice-Chair, discussed climate and nature risks, their impact on the economy, financial stability, supervision, and litigation, emphasizing ongoing efforts and future challenges.
Frank Elderson, Member of the Executive Board of the European Central Bank (ECB) and Vice-Chair of the Supervisory Board, delivered a lecture at the University of Oxford on 21 May 2026 regarding climate change and nature degradation.
The presentation outlined the material risks posed by climate change to the EU economy, including direct damages estimated at EUR 822 billion from 1980 to 2024, and recent extreme weather events impacting GDP significantly, such as floods in Slovenia and Valencia.
It highlighted the concept of “fossilflation,” where energy transition and fossil fuel prices influence inflation and monetary policy, emphasizing the urgency of shifting to renewable energy sources to enhance energy security and price stability.
The ECB’s assessment of climate and nature risks includes physical and transition risks for financial institutions, with a focus on the exposure of euro area banks to sectors dependent on ecosystem services. Water scarcity and ecosystem degradation pose significant risks to economic output and bank loans, especially in agriculture, manufacturing, and real estate sectors.
The ECB has implemented a multi-year program to strengthen banks’ capacities in managing climate and environmental risks, including publication of good practice guides, stress testing, and supervisory reviews, with ongoing monitoring and enforcement.
Litigation risks are increasing, with cases against states, corporations, and financial institutions related to climate change mitigation, adaptation, and disclosure obligations. These legal developments may influence transition risks and asset strandedness.
The ECB emphasizes the importance of continued action, noting that while central banks are not policy makers for climate issues, they will incorporate climate and nature risks within their mandates to support financial and price stability. The lecture concluded with a call for urgent and collective efforts to address these crises.
More information can be found at the official ECB publication: ECB lecture on climate change and nature degradation risks.
