ECB’s Elderson: Banks Must Stay the Course on Climate and Nature Risk Supervision

1 October 2025

By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Frank Elderson on Wednesday warned against any retreat from climate and nature risk supervision, arguing that such risks have become material for financial stability and must remain a core focus of banking oversight.

Speaking at an ECB industry dialogue in Frankfurt, Elderson said that banks had made “impressive strides” in incorporating climate and nature-related risks into their governance, risk management and stress testing, but that shortcomings persisted across portfolios and categories.

“Considering the materiality of the climate and nature crises, taking a step back is not an option,” he said. Climate-related and environmental risks were already producing shocks comparable in magnitude to the financial crisis and would only intensify, he said.

The ECB’s supervisory approach was moving from a “foundational to a business-as-usual” phase, with Joint Supervisory Teams expected to monitor banks’ follow-up and integrate climate and nature risks into standard supervisory activities such as inspections, stress tests and provisioning analysis, he said.

Elderson pointed in particular to mortgage lending as an area in which banks often failed to adequately incorporate both transition and physical risks. Data availability would also be critical, he warned, cautioning against weakening corporate sustainability reporting requirements.

He said banks were well placed to meet new prudential transition planning obligations coming into force in 2026, and that the ECB would continue to publish good practices as guidance.

Preparedness gave European banks a competitive advantage in transition finance, Elderson argued, with investment needs of around €1.2 trillion annually to meet EU 2030 climate targets creating business opportunities in lending and advisory services.

“In the face of changing climates – whether economic, political or indeed at the level of our planetary ecosystem – we cannot afford to delay, dilute or defer our efforts,” he said. “Instead, we must stay the course.”