Brussels, Belgium – A member of the European Central Bank warned that the climate crisis and the accelerating degradation of nature are no longer just an environmental challenge, but have become a direct threat to the stability of the global financial system. He called on financial institutions to prepare for the growing economic repercussions of these risks.
The official explained that extreme weather events, such as droughts, floods, and wildfires, along with biodiversity loss, can significantly impact the performance of businesses and markets. This, in turn, affects banks, investors, and insurance companies, increasing the likelihood of substantial losses in the financial sector.
He pointed out that environmental risks are now affecting asset and investment valuations. They can also lead to higher loan default rates and a decrease in the value of collateral. This necessitates that banks strengthen their risk management tools and integrate climate factors into their financial strategies.
He emphasized that the European Central Bank continues to work with banking institutions to ensure that climate and environmental risks are integrated into supervisory and regulatory processes. This strengthens the financial sector’s resilience to future shocks and maintains economic stability in the Eurozone.
This warning comes at a time of increasing international calls to accelerate the transition to a low-emission economy. Amidst this, there are concerns that delaying the necessary measures will exacerbate economic and financial losses in the coming years.
