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Managing climate-related risks

We measure, manage and monitor climate-related risks in order to keep prices stable and banks safe.

Why do climate-related risks matter for the ECB?

Climate change affects the way that our economy functions

This happens as a result of two types of risk:

  • the physical risks of a changing climate, including more frequent or severe weather events like flooding, droughts and storms
  • the transition risks from moving towards a carbon-neutral economy

These risks impact macroeconomic indicators such as inflation, economic growth, financial stability and monetary policy transmission. They also affect the value and risk profile of the assets on the Eurosystem balance sheet.

Climate change matters for our work as a central bank and supervisor

We need to account for the influence of climate change on the work we do to maintain price and financial stability. This means incorporating considerations of climate change into our

  • analysis and decision-making

  • macroeconomic models, projections, and scenarios

  • financial stability assessment

  • monetary policy analysis and transmission

  • risk management framework

Measuring and monitoring these risks is also important for us in safeguarding the safety and soundness of the euro area banking sector and entire financial system. It is our responsibility to make sure that banks can detect, manage and disclose risks properly, including those resulting from climate change.

We also need to manage climate-related risks in our own portfolios.

What is the ECB doing to manage climate-related risks?

We adjust our monetary policy operations

We improve our risk assessment capabilities, which includes managing climate risk exposures on the Eurosystem balance sheet and assessing how the credit ratings we use account for climate change. We also account for the influence of climate change in our monetary policy implementation framework where appropriate. This covers our asset purchases and collateral framework.

Press release

We conduct climate stress testing and assess climate-related financial risks

We run stress tests on the Eurosystem balance sheet, the banks we supervise and the wider economy. This helps us and others understand and manage exposure to climate-related risks, as well as other related systemic risks to the financial system. This way, we can make more informed decisions.

We enhance our modelling and data

We improve our modelling to assess the impact of climate change on our economy. In addition, we contribute to European and international efforts to improve the quality and availability of climate data, including by compiling data and indicators ourselves.

We ensure banks manage climate-related risk

In our role as banking supervisor, we ensure that banks have a safe and prudent approach to identifying, assessing and managing climate-related and environmental risks, and that they transparently disclose the risks they are exposed to.

Climate change and banking supervision

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Our climate action

Our climate agenda details all ongoing climate-related work at the ECB, grouped into six priority areas and based on our three strategic climate objectives.

ECB climate agenda

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