- Economy
- News Desk
- Source: European Central Bank https://www.ecb.europa.eu//press/key/date/2026/html/ecb.sp261019~f0a3e053de.en.html
European Central Bank Executive Board member Frank Elderson warned that climate change and nature degradation are becoming structural drivers of inflation and growth in the euro area, with ECB research suggesting severe water scarcity alone could put up to 24% of the bloc's economic output at risk. In a keynote speech at the Green Swan 2026 Conference, published by the ECB, Elderson said the summer of 2026 – Western Europe's warmest on record – showed how extreme weather disrupts energy, transport and food prices.
Key facts
- Frank Elderson, Member of the ECB's Executive Board and Vice-Chair of its Supervisory Board, spoke at the Green Swan 2026 Conference.
- Western Europe experienced its warmest summer on record in 2026, with severe droughts, wildfires and water scarcity, according to the ECB.
- Europe is warming more than twice as fast as the global average, the ECB said.
- ECB research indicates that severe water scarcity could put up to 24% of euro area economic output at risk.
- High temperatures and low river levels disrupted Europe's energy system and pushed up wholesale electricity prices this summer, the ECB said.
Why does the ECB call climate a systemic risk?
Elderson argued that individual disasters can appear manageable in isolation, but their cumulative and interacting effects pose a systemic threat. He cited the economist Simon Sharpe's observation that scientists are trained not to overstate risks while risk managers are trained not to underestimate them, highlighting the trade-off central bankers face in assessing uncertain outcomes.
The ECB board member said climate shocks can leave lasting economic scars by reducing labour productivity, damaging infrastructure and disrupting production, and can keep output below trend for years. He added that such shocks increasingly affect prices as well as growth, pointing to this summer's impact on energy and food costs.
How does nature loss affect the economy?
Beyond the climate, Elderson stressed that nature degradation operates through similar economic channels. He noted that healthy forests, soils, rivers, wetlands and oceans provide essential ecosystem services on which economic activity depends, often unnoticed until they are strained.
The speech highlighted that water scarcity this summer affected not only households and agriculture but also manufacturing, transport and energy production. Large areas of land were destroyed by fires, and key economic sectors faced disruption, the ECB said.
What are the cross-border implications?
Elderson said climate and nature risks are inherently cross-border, as food price shocks, supply chain disruptions and migration pressures do not stop at national frontiers. He noted that a significant share of economic activity and bank lending remains exposed to flood risk.
The ECB's research suggests that severe water scarcity alone could put up to 24% of the euro area's economic output at risk, underscoring the scale of the challenge for the single market. The human toll has also been severe, with tens of thousands of excess deaths linked to extreme heat during the summer months, according to the ECB.
What is the ECB's role?
Elderson framed the issue as central to the ECB's mandate, saying the bank is responsible for maintaining price stability and must incorporate climate and nature risks into its analysis. He called for better data and analysis to reduce uncertainty and for proportionate responses to the risks.
The speech did not announce new policy measures but signalled that the ECB will continue to factor climate and nature risks into its economic and supervisory work. Elderson's remarks come as European policymakers debate how to strengthen economic resilience and competitiveness while pursuing the green transition.
What happens next?
The ECB is expected to continue publishing research on climate and nature-related risks and their implications for monetary policy and banking supervision. Elderson's speech at the Green Swan 2026 Conference is part of the ECB's broader effort to integrate these risks into its framework, with further analysis likely to inform future policy discussions.
Source: European Central Bank
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