The European Central Bank (ECB) revealed a series of new priority areas to advance its work on embedding climate and nature-related risks into its activities, including plans to intensity its work in areas including assessing banks’ green economy transition plans and on analyzing their capabilities to address risks related to the growing physical impacts of climate change.
The new priorities follow the conclusion by the ECB of its Climate and Nature Plan 2024-2025, a 2-year roadmap launched in early 2024 by the central bank to help it address the increasing impact from the climate crisis on the economy and financial system, and focused on key areas including the impact and risks of the green transition, the growing physical risk of climate change, and risks stemming from nature loss and degradation.
In its review of the 2025-2025 plan, the ECB said that it has further embedded climate and nature-related risks into its core work, highlighting key points of integration in its monetary policy framework such as introducing a “climate factor” within the Eurosystem’s collateral framework and reducing the carbon emissions of the Eurosystem’s corporate bond holdings, as well as contributing to climate stress testing and scenario analysis, and ensuring that banks have improved their ability to assess climate and nature risks.
While noting its progress over the past two years, however, the ECB stated that “the economic and financial consequences of climate change and nature degradation continue to grow,” and said that as part of its efforts to continue embedding climate and nature into its work, it will intensify its work with a focus on three priority areas, including the transition to a green economy, coping with the growing physical impacts of climate change on the economy and the financial system, and the impact of nature-related risks and ecosystem degradation.
Under the green transition priority area the ECB said that it aims to focus on aspects including assessing banks’ prudential transition plans, further analysis on energy and fiscal costs, and exploring how climate-related considerations could be further incorporated into the operational framework.
In its work on coping with the physical impacts of climate change on the economy and financial system, the ECB said that it aims to strengthen macroeconomic analysis and improve data and risk monitoring, as well as to conduct further analysis of banks’ capabilities to tackle challenges related to physical risk. Additionally, the ECB said that it will intensify its work on the impact of nature-related risks and ecosystem degradation, including assessing the impact of water-related risks.
In the notes to its statement outlining its plans to advance its climate and nature work, the EBC said:
“The ECB needs to account for the effects of climate change and nature degradation in the conduct of its tasks within its mandate. Climate change has profound implications for price stability through its impact on the structure and cyclical dynamics of the economy and the financial system.”
