A senior policymaker at the European Central Bank (ECB) has issued a stark warning regarding the climate emergency, stating that the breakdown of nature poses a rapidly growing threat to the global economy and core financial stability. Frank Elderson, a Dutch lawyer and central banker, emphasized that the decline of ecosystem services is a fundamental economic issue rather than merely an environmental concern.
Elderson noted that the dependency of the economy on natural systems is significant, and the ongoing collapse of these services creates measurable risks for banks. He argued that understanding these exposures is essential, as the destruction of nature ultimately undermines the foundation upon which economies depend. He stressed that this is a matter of core economics, price stability, and financial stability, rather than a secondary concern.
The warning comes as record-breaking temperatures in France and Spain have fueled intense wildfires, resulting in significant land, business, and residential damage. Elderson highlighted that the rising frequency of natural disasters linked to global heating directly threatens financial stability, and he called for more rigorous work to assess the risks associated with the collapse of ecosystem services. Mapping these risks is described as more complex than evaluating the impact of isolated extreme weather events.
Ecosystem services encompass a wide range of benefits, including raw materials like water, energy production through hydropower, transportation routes, and habitats for marine life vital to food production and recreation. In response to these challenges, the ECB has initiated a program to investigate how escalating damage to these services could expose the financial system to credit loss dynamics. The bank plans to publish this analysis later in the year.
Elderson, who helped create the Network for Greening the Financial System (NGFS) in 2017 alongside Mark Carney and François Villeroy de Galhau, served as the founding chair of the group of 114 global central banks and remains a prominent figure in climate risk management. Despite facing pushback from some sectors, particularly under the US presidency of Donald Trump, Elderson insists that European banks largely recognize the relevance of these climate risks. He stated that it would be difficult to find a bank in Europe today that does not view the climate and nature crises as highly relevant to their operations.
Across France and Spain, wildfires have raged amid record-breaking temperatures, torching land, businesses and homes, in an emergency that will carry a heavy economic cost beside the direct human toll.
