Managing climate-related risks
We measure, manage and monitor climate-related risks in order to keep prices stable and banks safe. We also explore the relationship between nature, our economy and euro area banks.
Why do climate and nature-related risks matter for the ECB?
Climate change and nature loss and degradation affect how 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, and of dwindling ecosystems as a result of declining pollinating insects and deforestation
- the transition risks from moving towards a carbon-neutral economy or stemming from regulatory changes that limit the exploitation of natural resources
Climate-related risks have an impact on 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.
The loss of biodiversity and the degradation of natural ecosystems are likely to amplify climate-related risks. We need to gain insights into these risks and how they impact the broader economy and financial stability.
Climate change matters for our work as a central bank and supervisor.
We need to account for the impact of climate change on the work we do to maintain price and financial stability. This means incorporating climate change considerations 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 protecting 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.
Climate and nature are interdependent: climate change poses an additional threat to our ecosystems and natural degradation accelerates climate change. As a central bank and banking supervisor, we also need to further explore the relationship between climate, nature, our economy and euro area banks.
What is the ECB doing to manage climate-related risks?
Adjusting our monetary policy operations
We are improving our risk assessment capabilities, which includes managing climate risk exposures on the Eurosystem balance sheet and assessing how the credit ratings we use reflect climate change considerations. Where appropriate, we also account for the impact of climate change in our monetary policy implementation framework, which covers our asset purchases and collateral framework.
Press releaseConducting 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 related systemic risks to the financial system. This way, we can make more informed decisions. We also study the dependency of the economy and financial system on nature.
Enhancing our modelling and data
We have published climate change related indicators to improve the quality and availability of climate data. In addition, we continually improve our modelling to assess the impact of climate change and nature loss and degradation on our economy.
Climate change related indicatorsEnsuring 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 are transparent in disclosing the risks to which they are exposed.
Climate change and banking supervision