The European Central Bank (ECB) has announced its decision to expand its efforts in addressing climate change and has outlined three key focus areas that will guide its activities in 2024 and 2025.
The first focus area is the impact and risks associated with transitioning to a green economy. This includes examining the costs and investment needs of the transition, as well as understanding how the green transition affects various aspects of the economy such as labor, productivity, and growth. The ECB will also explore the possibility of making changes to its monetary policy instruments and portfolios to support the transition.
The second focus area is the increasing physical impact of climate change. The ECB will deepen its analysis of how extreme weather events impact inflation and the financial system. It will also assess the potential impact of adaptation or lack thereof to climate change on the economy and financial sector, including investment needs and the insurance protection gap.
The third focus area is the risks stemming from nature loss and degradation. The ECB will analyze the close link between nature loss, climate change, and their economic and financial implications. It will also explore the role of ecosystems in the economy and financial system.
ECB President Christine Lagarde emphasized the importance of understanding and keeping up with the changes brought about by a hotter climate and degradation of natural capital. She stated that by broadening and intensifying efforts, the ECB can better understand the implications of these changes and support stability and the green transition of the economy and financial system.
To support these efforts, the ECB has agreed on several concrete measures. Regarding the transition to a green economy, the ECB will intensify its work on the effects of transition funding, green investment needs, and transition plans. It will also explore potential changes to its monetary policy instruments and portfolios in view of the transition.
Regarding the increasing physical impact of climate change, the ECB will deepen its analysis of extreme weather events’ impact on inflation and the financial system. It will also assess the potential impact of adaptation to climate change on the economy and financial sector.
Regarding nature loss and degradation, the ECB will analyze the economic and financial implications of these issues and explore the role of ecosystems in the economy and financial system.
The ECB will also launch its eighth Environmental Management Programme to support its carbon reduction targets and incorporate environmental considerations into the design of the future euro banknote series and the digital euro.
The decision to step up efforts in these areas follows a stocktake of the ECB’s climate actions since its 2022 climate agenda and an adjustment of its work plan based on the changing environment and improved data availability and methodologies.
The ECB’s work in these focus areas will complement its current climate-related actions in monetary policy and banking supervision. The ECB will improve its climate-related indicators, risk monitoring, and disclosures, and contribute to the development of climate-related policies in European and international fora. The ECB remains committed to regularly reviewing these actions to ensure they align with its mandate.
For more information on the ECB’s planned work program for 2024 and 2025, refer to the Annex available on the ECB’s website.
