Frank Elderson, a member of the European Central Bank’s executive board, has issued a warning that the climate crisis and degradation of natural ecosystems represent an increasingly significant threat to global financial stability. He emphasized that ecosystem services—natural processes and assets that support human economic activity—are deteriorating rapidly, creating exposures that banks and financial institutions must account for in their risk assessments.
Elderson noted that understanding the financial implications of ecosystem collapse is more complex than analyzing the impact of individual extreme weather events. He cited ecosystem services such as water resources used for raw materials and hydropower generation, marine habitats that support food production, and recreational areas as examples of nature-dependent systems critical to economic functioning. The ECB, in its supervisory capacity over Europe’s largest banks, has launched an assessment program to examine how deteriorating ecosystem services could expose the financial system to credit risks and broader economic instability.
The central bank plans to publish analysis later this year exploring how ecosystem degradation could translate into credit losses for eurozone banks. Elderson stressed that addressing these risks represents core financial and price stability concerns rather than environmental activism, and emphasized the necessity of understanding banks’ specific exposures to nature-dependent sectors and services.
Elderson was instrumental in founding the Network for Greening the Financial System in 2017, an international coalition of central banks and financial supervisors focused on climate risk management. However, the green finance agenda has faced headwinds, particularly after the United States withdrew from the network last year. Despite this setback, Elderson reported that European banks remain convinced of the relevance of climate and nature-related risks to their operations and financial health.
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