The European Central Bank published an interview with Executive Board member and Supervisory Board Vice-Chair Frank Elderson in which he argued that the ECB’s mandates on price stability, financial stability and sound banking require it to take the climate and nature crises into account, while stressing that climate policy itself is set by elected governments. He pointed to climate-driven supply disruptions, including the Rhine being unnavigable for eight weeks in 2022, which he said added 0.7 percentage points to food price inflation, and described Europe’s dependence on fossil energy as a price stability risk. Elderson also outlined operational steps already taken, including incorporating climate considerations into the ECB’s models and reflecting Paris Agreement alignment in collateral valuation, and said the ongoing review of the operational framework will examine whether similar tools could be applied on a more structural basis, without pre-empting discussion of “dual interest rates”. On supervision, Elderson said banks must identify and manage all material climate- and nature-related risks, citing examples such as flood-prone mortgages and lending to power plants reliant on river water for cooling. He reported that in 2019 only around 25% of banks had begun to address these risks seriously, but that by the end of 2024 all but two of the 112 banks directly supervised by the ECB had at least adequately mapped their exposures within the set deadline; remaining shortcomings include incomplete coverage across countries of operation and insufficient assessment of biodiversity loss. While stating that supervisors do not decide which sectors banks finance, he said the ECB expects banks that continue to lend to activities such as fossil fuel production to demonstrate robust management of associated risks, including reputational and legal risks. Elderson also warned against a renewed push for deregulation, arguing that the internationally agreed Basel IV capital requirements should be implemented “as quickly and as fully as possible”, while acknowledging that if other jurisdictions deviate it may be reasonable for Europe to consider adjustments without creating a “race to the bottom”. Beyond capital standards, he called for completing the banking union, capital markets union and Single Market, including a single European deposit guarantee scheme. He further highlighted rapidly growing private credit and the broader non-bank financial sector as an area where transparency and supervision lag bank standards, and said international work is under way to close information gaps, guided by the principle that the same risks and activities should be regulated in the same way.
European Central Bank 2026-04-22
European Central Bank interview reiterates climate and nature risk expectations for banks and cautions against Basel IV dilution
The European Central Bank published an interview with Executive Board member and Supervisory Board Vice-Chair Frank Elderson, who said the ECB’s price stability, financial stability and sound banking mandates require it to factor climate and nature risks into monetary policy and supervision, while climate policy remains for elected governments. He noted existing climate-related operational measures and said the operational framework review will assess using similar tools more structurally. Almost all directly supervised banks have now mapped their climate and nature risk exposures, though gaps remain. Elderson also urged swift, full Basel IV implementation, completion of the banking and capital markets unions including a single European deposit guarantee scheme, and stronger transparency and supervision for private credit and the wider non-bank financial sector.