Frank Elderson, a member of the European Central Bank’s executive board, has warned that the escalating climate emergency and the degradation of natural ecosystems represent a fast-growing threat to global financial stability. Speaking as wildfires continue to spread across parts of Europe, he said the ECB is expanding its monitoring of risks tied to the loss of so-called ecosystem services.
What did Elderson say about the risk to financial stability?
Elderson said the erosion of nature-based systems that underpin economic activity — such as clean water, fertile soil, pollination and climate regulation — is becoming a direct threat to what he called “core financial stability.” He argued that these ecosystem services have historically been taken for granted by markets and regulators alike, even though entire industries and supply chains depend on them functioning reliably.
He pointed to the ongoing wildfires as a visible symptom of a broader, accelerating breakdown that could disrupt insurance markets, damage infrastructure, and undermine the value of assets tied to vulnerable regions. According to Elderson, the scale of this risk has been underestimated by financial institutions that have traditionally focused on carbon emissions alone, rather than the wider collapse of natural systems that support economic output.
The climate and nature crisis is no longer a distant risk — it is already reshaping the foundations of financial stability, a senior policymaker said.
Why is the ECB stepping up its climate risk monitoring now?
The ECB is intensifying its work because policymakers believe existing models fail to capture how quickly nature-related damage could translate into financial losses. Elderson indicated that more analysis is needed to understand how the collapse of ecosystem services could ripple through banking, insurance and investment portfolios across the eurozone.
He said this expanded monitoring reflects a recognition within the central bank that climate change and nature loss are interconnected risks requiring closer, more urgent scrutiny, rather than being treated as a secondary or long-term concern separate from mainstream financial supervision.
What does this mean for the eurozone economy?
For the eurozone, Elderson’s comments suggest that regulators may soon push banks and insurers to more explicitly account for nature-related risks alongside traditional climate metrics like carbon exposure. This could mean tighter stress-testing requirements and greater scrutiny of loans, investments and insurance policies linked to regions facing wildfire, drought or ecosystem collapse.
The warning also signals that the ECB views environmental degradation not just as an ethical or long-term issue, but as an immediate and material risk to the eurozone’s financial system, one that could affect everything from property values to the cost and availability of insurance in the coming years.
