Frank Elderson, a member of the European Central Bank's executive board, has warned that the climate emergency and the breakdown of nature represent a significantly increasing threat to the global economy and financial stability. Elderson stated that the ECB is intensifying its oversight of financial risks associated with the degradation of 'ecosystem services,' which are natural processes and assets vital for human activities.
He explained that these essential services are not stable and are rapidly declining, leading to what he termed the climate and nature crises. Elderson highlighted that these nature-related risks can materialize as impacts on credit risk, economic growth, inflation, and ultimately, long-term financial instability. He stressed that addressing these issues is a matter of core economics and financial stability, not merely environmental activism.
Recent extreme weather events, such as wildfires in France and Spain amid record temperatures, underscore the tangible economic costs of global heating. Elderson noted that assessing the risks from collapsing ecosystem services is more complex than evaluating a single extreme weather event, as it involves intricate dependencies on nature.
As the supervisor of Europe's largest banks, the ECB is undertaking a program to evaluate how escalating damage to ecosystem services could expose the financial system to risk. The central bank intends to release an analysis later this year investigating the potential for 'ecosystem degradation pathways' to result in credit losses for eurozone banks.
Elderson, a Dutch lawyer and central banker, was instrumental in establishing the Network for Greening the Financial System (NGFS) in 2017. He previously served as the founding chair of this group, which comprises 114 global central banks and financial supervisors focused on developing climate risk management frameworks.
The push for a green agenda in financial services has encountered resistance, particularly under the US presidency of Donald Trump, who withdrew the United States from the NGFS last year. Elderson indicated that despite such pushback, the European banking industry remains largely convinced of the necessity of addressing climate and nature-related risks, stating that it is difficult to find a European bank that would honestly claim these issues are not relevant.