The rapid destruction of nature and the worsening climate crisis are becoming increasingly serious threats to the global economy and financial stability, according to a warning from a senior European Central Bank official.
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ECB Executive Board member Frank Elderson said the institution is stepping up its oversight of financial risks linked to the degradation of so-called “ecosystem services.” These include the natural resources and processes on which human activity and the economy depend.
Elderson stressed that these services are rapidly deteriorating and cannot be considered stable, which, he said, also explains the use of the term climate and nature crisis.
He said the economy is far more dependent on nature than is commonly perceived. Consequently, its degradation could directly affect banks, lending, inflation and economic growth rates.
His comments come as Europe experiences severe consequences from record temperatures and large-scale wildfires. According to The Guardian, fires in France and Spain have destroyed vast areas of land, homes and businesses, resulting in significant economic costs alongside the loss of human life.
According to Elderson, global warming is making natural disasters more frequent, while their effects pose a risk to financial stability.
He stressed that the destruction of nature undermines the very foundation on which economies depend. For this reason, the issue should not be viewed solely as an environmental problem, but as a fundamental element of the economy and the stability of the financial system.
In its role as supervisor of Europe’s largest banks, the European Central Bank has launched a program to examine the impact that nature degradation could have on the banking system. Later this year, the institution is expected to publish an analysis of how ecosystem damage could cause loan losses for eurozone banks.
Frank Elderson was also one of the figures who founded the Network for Greening the Financial System, or NGFS, in 2017, together with other leaders of international central banks.
Climate initiatives within the financial sector, however, have faced opposition, particularly during Donald Trump’s presidency in the United States. Trump withdrew the United States from the NGFS, leaving Europe with the leading role in efforts to manage climate-related financial risks.
Elderson said the European banking industry has now accepted that threats arising from climate change and damage to nature can no longer be ignored. According to him, it would now be extremely difficult to find a bank in Europe that would honestly claim the issue does not matter, as that period has already ended.
