In an ECB-published interview conducted by NVDE, Frank Elderson set out why the European Central Bank treats climate and nature-related risks as part of its price stability and prudential mandates, and how this is feeding into both monetary policy work and banking supervision. He indicated that 2025 supervision will focus on ensuring directly supervised banks, with assets totalling over EUR 26 trillion, fully account for climate and nature-related risks in strategy and risk management and comply with a new regulatory requirement to develop transition plans, with enforcement action possible for institutions still behind expectations. The ECB’s climate and environmental (C&E) risk milestones required banks to complete materiality assessments by March 2023, integrate C&E risks into governance, strategy and risk management by December 2023, and meet the full scope of ECB expectations by end-2024; most banks met the 2023 targets, but a minority remain laggards and could face potential penalties as compliance assessments for the end-2024 deadline proceed. Elderson linked nature loss to bank credit risk, citing ECB analysis that 72% of euro area non-financial corporations rely heavily on at least one ecosystem service and that 75% of corporate bank loans (around EUR 3.24 trillion) are to such borrowers, while underscoring persisting data gaps. On transition risk, he referenced an ECB assessment that 90% of analysed banks faced elevated risks due to substantial misalignment with the Paris Agreement, with the largest risk stemming from exposures to energy-sector firms lagging in phasing out high-carbon processes. For monetary policy, he pointed to measures including reducing the carbon footprint of the Eurosystem’s corporate bond holdings, expanding annual climate disclosures to cover more than 99% of monetary-policy assets, using climate stress tests, and integrating transition-policy assumptions such as carbon pricing under the EU Emissions Trading System 2 into macroeconomic analysis; he also cited research estimating the 2022 European heatwave added 0.8 percentage points to euro area food price inflation. In 2025, the ECB plans to monitor progress closely and use its supervisory tools where needed, while continuing work to improve climate and nature-related data through the development of climate-related statistical indicators.
European Central Bank 2025-02-20
European Central Bank’s Elderson prioritises bank transition plans for 2025 and warns laggards may face penalties on climate and nature risk expectations
Frank Elderson discussed the ECB's integration of climate and nature-related risks into its mandates, affecting monetary policy and banking supervision. By 2025, banks with over EUR 26 trillion in assets must incorporate these risks and comply with new transition plans, with enforcement for non-compliance. Elderson emphasized exposure to nature loss and transition risks, stressing the need for better data and alignment with the Paris Agreement.