The European Central Bank published research setting out a new Nature Value at Risk framework, developed with the University of Oxford’s Resilient Planet Finance Lab, to quantify how degradation of ecosystem services can translate into economic losses and financial stability risks. The preliminary results find that 72% of euro area firms are critically dependent on ecosystem services and that these firms account for around three-quarters of corporate bank lending, with water-related ecosystem services identified as the most critical. At sector level, the framework estimates the share of output that could be lost when an ecosystem service declines, combining a location-specific systemic risk score, sector dependency and cross-border supply-chain linkages. Under an extreme but plausible drought with a 25-year return period, surface water scarcity alone would put nearly 15% of euro area economic output at risk; agriculture is the most exposed, with up to 30% of output at risk in southern European countries. An assessment of lending across 2,500 euro area banks finds that more than 34% of their outstanding nominal loans to non-financial corporations, over EUR 1.3 trillion, is extended to sectors exposed to high water scarcity risk, led by manufacturing, followed by wholesale and retail trade, real estate, construction and electricity production; the research also highlights groundwater stress, shrinking floodplains and water quality deterioration, including recreational losses exceeding EUR 100 billion per year. The ECB said detailed results will be published later this year and argued that the findings support integrating nature-related risks, particularly water-related risks, into financial risk assessment frameworks.
European Central Bank 2025-05-23
European Central Bank research links surface water scarcity to nearly 15% of euro area output at risk and over EUR 1.3 trillion in bank exposures
The European Central Bank and the University of Oxford's Resilient Planet Finance Lab introduced a Nature Value at Risk framework to assess economic losses from ecosystem service degradation. Findings show 72% of euro area firms, representing three-quarters of corporate bank lending, depend on ecosystem services, especially water-related ones. The research suggests integrating nature-related risks into financial assessments, highlighting significant exposure to water scarcity risks across sectors.