The European Central Bank (ECB) announced today a decision to expand its work on climate change, releasing a new “climate and nature plan 2024-2025,” outlining its roadmap for action in these areas over the next two years.
According to the ECB, the new initiative comes amidst an increasing impact from the climate crisis on the economy and financial system, with the central bank’s work aimed at focusing 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.
ECB President Christine Lagarde, said:
“A hotter climate and the degradation of natural capital are forcing change in our economy and financial system. We must understand and keep up with this change to continue to fulfil our mandate.”
The new announcement follows the ECB’s decision in 2022 to set “stepping up efforts to address climate change” as one of its top supervisory priorities, with planned actions including performing deep dives on banks’ climate risk, reviewing banks’ compliance with climate risk disclosure requirements and examining reputational and litigation risk related to banks’ climate and environmental strategies and risks. The ECB said that its increased focus will complement its current climate-related actions in its ongoing tasks, including monetary policy and banking supervision.
The ECB’s new roadmap outlines key measures and actions planned for each of its new focus areas. Under the “navigating the transition to a green economy,” planned actions include assessing the effects of transition funding on the monetary policy mechanism, assessing green investment needs, analyzing the structural consequences stemming from the transition, and advancing the macroeconomic modelling framework, with a focus on climate aspects. In its work to address the physical impact of climate change, the ECB will advance the integration of climate change impacts into climate scenarios and the framework used for macroeconomic projections, improve the availability of data to support physical risk analysis, and explore the impact of climate adaptation on the economy and financial sector, including the insurance protection gap and investment needs. The ECB will also analyze the link between climate change and nature degradation and biodiversity loss, and the related economic and financial implications.
The ECB added that in its own operations, the central bank will launch an updated Environmental Management Programme to support its 2030 carbon reduction targets, and outlined plans including working on eco-design principles for euro banknotes, and incorporating environmental footprint considerations into the design of a digital euro.
“By broadening and intensifying our efforts we can better understand the implications of these changes and, in doing so, help to underpin stability and support the green transition of the economy and the financial system.”
Click here to access the ECB’s climate and nature plan 2024-2025.