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ECB official warns climate crisis poses growing threat to ‘core financial stability’

From The Guardian · () English

Summarized and contextualized by DistantNews.

At a glance

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  • A senior European Central Bank official warned that the climate and nature crises pose a dramatically growing risk to the global economy and financial stability.
  • Frank Elderson highlighted the decline of "ecosystem services," which support human activity, as a significant threat that requires closer monitoring by financial institutions.
  • The ECB is increasing its assessment of these nature-related risks, which can impact credit risk, inflation, and long-term financial instability.

The climate and nature crises present a dramatically growing risk to the global economy, according to a senior policymaker at the European Central Bank. Frank Elderson, a member of the ECB’s executive board, stated that the central bank is intensifying its monitoring of financial risks linked to the destruction of "ecosystem services" – nature-related processes that underpin human activity.

These services are not stable but they are in rapid decline. That’s why we talk about the climate and nature crises.

— Frank EldersonExplaining the urgency of the climate and nature crises.

"These services are not stable but they are in rapid decline. That’s why we talk about the climate and nature crises," Elderson said. He emphasized that understanding the dependency on these services and the financial sector's exposure to their degradation is crucial. The ECB's work in this area is not merely an environmental concern but is directly tied to core economics and financial stability.

Elderson pointed to the recent wildfires raging across France and Spain amid record temperatures as a stark example of the economic costs associated with natural disasters linked to global heating. He noted that assessing the risk from the collapse of ecosystem services is complex, extending beyond single extreme weather events to encompass broader impacts on credit risk, growth, and inflation.

Nature-related risks can pose material economic and financial risks, including through their impacts on credit risk, growth, inflation and – over the long-term – potential financial instability.

— Frank EldersonDetailing the specific economic and financial consequences of nature degradation.

As the supervisor of Europe's largest banks, the ECB is launching a program to assess how escalating damage to ecosystem services could expose the financial system to risk. The central bank plans to publish analysis later this year on how "ecosystem degradation pathways" might translate into credit loss dynamics for eurozone banks. Elderson, a key figure in establishing the Network for Greening the Financial System, advocates for integrating climate risk management into financial supervision.

I did interviews [previously] saying, you know, if you destroy nature, you destroy the core on which our economies depend. And that got people’s attention. This is not some kind of a flower-power, tree-hugging exercise. This is core economics. This is core financial stability, core price stability.

— Frank EldersonEmphasizing the fundamental economic implications of environmental damage.
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Originally published by The Guardian. Summarized and contextualized by our editorial team with added local perspective. Read our editorial standards.

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