In introductory remarks at the ECB’s Climate, Nature and Monetary Policy Conference, ECB President Christine Lagarde said the central bank has moved over the past decade from recognising climate risk to systematically incorporating climate change into monetary policy and central banking, with last year’s strategy assessment extending that approach to nature-related risks. She presented the conference as part of the ECB’s effort to deepen fact-based analysis of how climate shocks, the green transition and nature degradation affect inflation, output and the wider macroeconomic environment. Lagarde pointed to ECB work showing that last summer’s heatwave may have added up to 0.7 percentage points to euro area unprocessed food prices after one year, while regional output remains around 3 percentage points lower on average four years after a drought or flood. She said the ECB already incorporates the new EU emissions trading system for buildings and road transport, ETS2, into its projections and estimates it will add about 0.2 percentage points to euro area headline inflation in 2028. She also said the roadmap set by the 2021 strategy review has been substantially delivered across stress testing, risk assessment, corporate bond holdings and the collateral framework, and cited recent joint research indicating that an extreme water scarcity episode could put as much as 24% of euro area output at risk.

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