Elderson: Climate risks integral to ECB mandate

Elderson clarifies the ECB's role is not climate policymaking, but considering climate and nature crises is essential for achieving price and financial stability.

He cites the 2022 Rhine navigability issue, which pushed food price inflation up by an additional 0.7 percentage points, as a direct example of climate impact on price stability.

He argues that Europe's dependence on fossil energy poses price stability risks, which the ECB must understand.

Legally, the ECB's secondary objective to support EU general economic policies, including climate goals, obliges it to act.

He describes this as achieving two objectives at once: ensuring price stability while contributing to climate goals, for instance, by incorporating climate considerations into economic models and collateral valuation.

Elderson highlights significant progress in banks' climate risk management.

By late 2024, nearly all 112 directly supervised banks had adequately mapped their climate and nature-related risks, a substantial improvement from only 25% in 2019.

However, gaps persist, such as inconsistent risk management across regions or insufficient assessment of biodiversity loss.

He clarifies that while the ECB does not dictate lending to specific sectors like oil, it mandates robust management of associated risks, including reputational and legal ones.

The ongoing energy transition, a political decision, underscores the critical role of banks in financing, requiring them to maintain strong capital, liquidity, and risk management, drawing lessons from past financial crises.