From recognition to integration: the ECB’s progress on climate and nature-related risks and the role of its climate change centre

Prepared by Ivana Baranović, Giuseppe Barillà, Irene Heemskerk and John Hutchinson

1 Introduction

The relevance of climate change and nature degradation for central banks continues to grow amid worsening physical impacts and a slower than expected transition to a low-carbon economy.^[1] Physical risks arising from more frequent and severe weather events, together with risks stemming from the transition towards a low-carbon economy, can affect inflation, economic activity, financial markets and the resilience of the overall financial system. Within its mandate, it is therefore important that the European Central Bank (ECB) develops a deep understanding of these risks and incorporates them into its monetary policy, banking supervision and other areas of activity.

The ECB climate change centre (CCC) was established in 2021 to coordinate and provide strategic direction for the work of the ECB on climate-related issues.^[2] The aim was to help the institution address the growing relevance of climate-related risks for the delivery of its mandate. The centre has evolved alongside the ECB’s climate agenda, supporting the progression “from recognition to integration”.^[3] This transition has contributed to ensuring that the approach of the ECB to climate and nature-related risks is adequate and responsive. In this article, we review how the CCC has developed and what it has achieved in its first five years, highlighting the key institutional accomplishments and explaining how the ECB continues to respond flexibly to the changing economic, policy and environmental landscape.

2 Steering the work on climate and nature-related risks from recognition to integration

The 2021 ECB monetary policy strategy review recognised climate change as an important consideration for its monetary policy and central banking functions. Extensive analysis demonstrated how climate-related risks closely interact with price stability (Work stream on climate change, 2021). On that basis and within its mandate, the Governing Council committed to ensuring that the Eurosystem fully takes into account the implications of climate change and the transition to a low-carbon economy for monetary policy and central banking, in line with the climate goals and objectives of the EU.^[4] This commitment meant adopting an ambitious climate action plan, which involved a wide range of ECB business areas and resulted in a more structured and coordinated approach to strategic planning and the assessment of climate-related risks.^[5]

The cross-cutting nature of climate-related risks called for a coordinated institution-wide approach, leading to the establishment of the CCC. The CCC reports directly to the President of the ECB. It is a small unit made up of staff members from different professional disciplines with relevant expertise, and it includes a climate scientist. In its first year, the CCC focused on designing governance structures, strengthening cross-functional cooperation and putting in place suitable coordination and reporting mechanisms to support the implementation of the ECB’s climate action plan. It also worked on building up analytical capabilities, creating internal networks and supporting ECB staff members with their climate-related work.

As this climate-related work expanded and became more established, the CCC further developed the strategic climate objectives of the ECB and helped improve its readiness to respond to climate and nature-related risks. Building on the foundations established through the ECB’s 2021 climate action plan, the CCC coordinated and led the publication of the ECB’s climate and nature plan 2024-25, which expanded on the ECB’s previous work on climate change. It identified key priority areas and extended its research and analysis to nature-related risk for the first time. The CCC also continued to support the ECB in systematically integrating climate and nature-related risks into its analytical, operational and policy processes, by coordinating its work activities and building up internal expertise through training programmes, seminars, relevant publications and knowledge-sharing across ECB business areas and the Eurosystem.

Establishing a central hub for this work has enabled the ECB to focus on sustained and coordinated engagement with external stakeholders on climate-related issues. Addressing climate change and nature degradation requires close cooperation among public authorities, the financial sector, academia and civil society. One of the key tasks of the CCC is therefore to ensure that external developments – such as changes in the macroeconomic and geopolitical environment, evolving climate and nature-related risks, technological innovation or different international initiatives – inform the work of the ECB while strengthening collaboration with partner institutions. This includes ongoing participation in international fora such as the Financial Stability Board, Basel Committee on Banking Supervision, G20 and G7, as well as cooperation with other European institutions, such as the European Commission, the European Banking Authority (EBA), the European Insurance Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority. The CCC also maintains regular dialogue with industry, academic and civil society representatives.

The CCC supports the ECB’s participation in two central bank cooperation fora, namely the Network for Greening the Financial System (NGFS) and the Eurosystem Climate Change Forum. The NGFS was founded in Paris in 2017 by eight central banks and their supervisors. The aim was to advance the management of environmental and climate-related risks in the financial sector and to mobilise finance in support of the transition to a sustainable economy. Today, this forum comprises more than 170 institutional members and observers, becoming a global network and the main international forum for climate-related cooperation among central banks and supervisors from advanced, emerging and developing economies. In 2022 the Governing Council approved the establishment of a Eurosystem Climate Change Forum at the euro area level. This forum acts as a vehicle for fostering information exchange and knowledge-sharing between the national central banks, drawing on existing knowledge to ultimately advance its climate agenda. Membership in this forum was extended to include the other central banks of the European System of Central Banks (ESCB) in January 2026.

Through its extensive engagement across ECB institutional functions and with external stakeholders, the CCC acts as a knowledge hub, helping to develop the ECB’s stance on climate and nature-related risks. The CCC facilitates a two-way exchange of knowledge by reporting external insights to ECB experts and sharing its in-house expertise through specific communication channels, such as workshops, seminars and conferences. This helps ensure that the policy work of the ECB takes into account diverse perspectives and a range of expertise. It also strengthens the analytical foundation for its policy and research activities and helps the CCC and other business areas to develop the ECB’s stance on strategic initiatives relevant to its work, including the European Commission’s sustainability Omnibus package and developments related to the EU Emissions Trading System.

3 Progress made

The CCC and its governance structure created the foundation for advancing the climate and nature agenda of the ECB over successive phases and for improving how business areas address climate and nature-related risks across the ECB’s core business functions. Thanks to the continuous cross-institutional efforts of multiple business areas and supported by its governance structure, the ECB has successfully drawn up and implemented several climate action plans, delivering on its commitments. The highlights of this work are presented below (Table 1). They give examples of progress made by relevant business areas to ensure that climate and nature-related risks are fully considered across the ECB. In parallel, a wealth of experience and knowledge are continuously built upon to support further progress in this regard.

4 Ensuring an adaptable response to improve work and address new developments

The ECB has deepened its understanding of climate and nature-related risks and remained responsive, ensuring that both its policy analysis and policymaking have kept pace with the evolving climate, nature and policy risk landscape. Although substantial progress has been made, the increasing economic implications of climate and nature-related risks call for continuous efforts and underscore the importance of implementing the European climate law. In this context, rigorous research and impartial, evidence-based analysis by the central banking and research communities are crucial. The CCC, together with experts across the ECB, consistently strengthens its analytical capabilities. Three priority areas have been identified: (i) navigating the transition to a climate-neutral economy, (ii) assessing physical climate risks, and (iii) furthering its understanding of nature-related risks.

Navigating the green transition

Advancing the green transition and reducing the EU’s dependence on fossil fuels could help curtail an important source of inflation volatility and economic and financial uncertainty. Energy markets are becoming increasingly exposed to geopolitical shocks, highlighting their dependence on fossil fuels. A more sustainable energy mix would benefit price stability and support disposable incomes for European households, contributing to the common good of combatting global warming by abating CO₂ emissions.^[6] The ECB is currently analysing how developments in energy markets, including elevated fuel and electricity prices, as well as the green transition, affect the economy and financial stability. In particular, it has explored their impact on labour markets, industrial competitiveness and households (Kuik et al., 2022; Bijnens et al., 2025; Arlia et al., 2026; and Schroeder, 2026). Furthermore, its analysis considers how EU emissions allowances will affect inflation and the economy (Aguilar et al., 2025). These analytical studies underline the importance of affordable, reliable and low-carbon energy for EU strategic autonomy and stable economic developments.

Closing the green investment gap in Europe will be crucial for the success of the green transition, as well as for long-term economic growth and security of energy supply. The ECB is therefore devoting more time to estimating the investment required to meet the EU’s climate objectives and to identifying policies to secure both public and private financing. Recent analysis has estimated that additional green investment of around 3% of EU GDP will be required annually until 2030 for this purpose. Estimates point to around 20%-25% of total green investment needs being covered by the public sector, while the remainder will need to be covered by private capital.^[7] This demonstrates the importance of deeper European capital markets, appropriate public policies and an efficient allocation of capital (Nerlich et al., 2025). These findings show that green investment is not only key to the green transition but also to future productivity and economic growth.

For banking supervision, the imminent prudential transition planning requirements will be an important element of banking sector resilience. Alongside continuously monitoring banks’ progress in managing climate and nature-related risks, banking supervisors are taking a gradual and targeted approach to the new prudential transition planning requirements (Elderson, 2025). This work is part of the supervisory priorities for 2026-28 and an important element of the supervisory efforts to strengthen the resilience of the EU banking sector to transition risks.^[8]

Physical risks

2026 has illustrated some of the broader implications of extreme weather events for economies and societies, with impacts occurring through a wide range of channels. Prolonged and recurring heatwaves and droughts have caused significant productivity losses and agricultural damage across Europe.^[9] Droughts have also reduced river water levels, limiting the supply of cooling water for industrial plants and disrupting river transport.^[10] A Kiel Institute assessment estimates that the river Rhine’s low water levels in July 2026 reduced real GDP growth in Germany by around 0.2 percentage points in the third quarter, although economic output should rebound towards the end of the year.^[11] In addition, wildfires, such as those in Spain and France, have burned down thousands of hectares of land, forcing large-scale evacuations and causing substantial damage to property. This has led many businesses to suspend their operations.

Given the increasing frequency of extreme weather events, the key priorities are to improve data availability and refine the methodologies for assessing exposures to physical risk. Extreme weather events affect the economy through multiple channels and can cause losses that are increasing over time. This makes it challenging to assess their precise overall economic impact and consequences.^[12] Additional challenges arise from cumulative effects, including the degradation and loss of agricultural land, shifts in tourism patterns, higher rates of mortality, climate-induced migration and reduced labour productivity. It is therefore crucial that the ECB continues to strengthen its analytical framework for assessing the impact of floods, droughts, heatwaves and other extreme weather events (Lane, 2026), thereby increasing its capacity to produce impartial and evidence-based research on these effects.

In many regions of Europe, the insurance protection gap is very large, making households, businesses and our societies more vulnerable. Joint EIOPA-ECB analysis shows that less than one-quarter of the losses caused by natural catastrophes in the EU is currently insured, and in several countries this share is below 5%. Moreover, insurance coverage has recently been declining and may fall further, such that this gap is expected to widen. This may lead to an increasing economic burden on households, businesses and governments (Giuzio et al., 2026) and risk spillover effects to banks. Further research by the ECB and other relevant authorities is needed to assess the macroeconomic, fiscal and financial stability impacts associated with the insurance protection gap. The complexity and cross-cutting nature of this issue may require the involvement of a broader range of stakeholders. In this regard, it is worth mentioning the joint EIOPA-ECB proposal for an EU public-private reinsurance scheme to pool risks and expand coverage across Member States, and to establish an EU public disaster fund to improve disaster risk management and coordination (EIOPA-ECB, 2024).

Given that some degree of climate change is inevitable, climate change adaptation and resilience-building are becoming increasingly important in addition to the current mitigation measures. The ECB will continue to strengthen its understanding of the role of the financial sector in supporting climate change adaptation and resilience, as well as of the most effective pathways for reducing the overall exposure of the economy and the financial system to climate-related risks.

Nature-related risks

Nature degradation is increasingly seen as a source of macroeconomic and financial risk alongside climate change, with potentially material implications for price stability and financial stability across Europe. Nature-related risks can have direct effects on the economy. For example, water scarcity, soil erosion and the loss of pollinators can impair agricultural productivity and drive up food prices. These effects, even if they are initially confined to a specific location, can spread throughout the economy via supply chains. The resulting economic implications can subsequently translate into financial risks, affecting financial institutions through their financing of exposed economic activities and sectors. Biodiversity loss can also amplify climate change and its associated risks, especially through the degradation of ecosystems that store carbon or support climate change adaptation, underlining the need for an integrated approach to climate and nature-related risks (Ceglar et al., 2024).

The ECB is strengthening its analytical framework to account for nature-related risks and to better understand their impact on the ECB’s mandate. The ECB has begun developing methodologies to assess the financial impact of nature-related risks. ECB research shows that 72% of companies in the euro area are highly dependent on ecosystem services, and nearly 75% of banks’ corporate lending goes to firms that are highly dependent on at least one ecosystem service (Ceglar et al., 2024).^[13] This work seeks to both understand how ecosystem degradation may propagate through the financial system and enrich its existing climate-related risk assessments. The key topics for future work include: (i) improving data availability; (ii) developing nature-related scenarios; (iii) examining how banks identify and manage these risks; and (iv) assessing potential supervisory approaches, supported by ongoing cooperation with the NGFS.

Water-related risks have emerged as one of the most significant sources of nature-related risk for the EU economy. Water ecosystems are a critical economic asset in Europe and a significant source of risk when they are disrupted. Recent research has found that an extreme water scarcity event could put up to 24% of euro area output at risk of loss (Ceglar et al., 2025). Banks are also considerably exposed to water-dependent sectors, and increasing water stress could affect production, supply chains and broader macroeconomic resilience. In response, the ECB and other central banks of the ESCB are working collaboratively on an analytical framework to assess the implications of rising water stress on the EU economy.

5 Concluding remarks

Five years on, the CCC has helped the ECB to transition from recognising climate-related risks to systematically integrating climate and nature-related risks across all relevant business areas. During this time, the CCC, in close cooperation with other business areas, has developed the strategic climate and nature agenda of the ECB, translated high-level objectives into concrete institutional actions and strengthened cooperation across the Eurosystem and internationally. This has helped the ECB to deliver on its climate-related commitments.

The ECB will need to remain responsive to changing climate and nature-related challenges. The next phase of the ECB’s climate and nature-related work will combine strategic continuity with the flexibility to respond to emerging risks. The ECB will continue to integrate climate and nature-related risks into its monetary policy, banking supervision, financial stability and market operation activities. At the same time, analytical work will increasingly focus on those issues where uncertainty remains greatest and where new evidence is needed to support policymaking. In particular, the three focus areas discussed earlier, namely (i) navigating the green transition, (ii) physical risks, and (iii) nature-related risks, help to steer the ECB’s attention towards those developments that are most relevant for its mandate.

In its role as both a strategic and coordination hub and a climate competence centre, the CCC will continue to work hand in hand with all relevant business areas of the ECB and the central banks of the ESCB. Specifically, the CCC will continue to identify emerging risks and policy priorities, harness relevant expertise and foster research that improves the understanding of climate and nature-related risks. The combination of consistency and responsiveness will be important to ensure that the ECB remains prepared for the evolving economic and financial implications of climate change and nature degradation, while keeping its actions firmly grounded in its mandate.

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