By David Barwick – FRANKFURT (Econostream) – Climate-related shocks are increasingly affecting both economic activity and inflation and are becoming structural drivers of economic and financial outcomes, European Central Bank Executive Board member Frank Elderson said Monday.

In a keynote speech at the Green Swan 2026 Conference in Manila, Elderson said high temperatures and low water levels had disrupted parts of Europe’s energy system this summer and contributed to higher wholesale electricity prices, while extreme weather continued to influence food prices.

“Climate shocks therefore affect not only growth but also inflation dynamics,” he said.

Elderson said climate and nature risks increasingly affected productivity, growth, inflation and financial-system resilience, meaning that taking them into account “falls squarely within our mandate.”

“That is why central banks need macroeconomic models and forecasting procedures that reflect the impact of climate change and nature degradation and keep track of the changing structure of the economy,” he said.

Elderson said this summer's experience demonstrated the economic consequences of extreme weather, with water scarcity affecting manufacturing, transport and energy production as well as households and agriculture.

“Climate and nature are not external to our economies,” he said. “They are embedded within them and, increasingly, they are becoming a macroeconomic concern.”

Recent ECB research suggested severe water scarcity alone could put as much as 24% of euro area output at risk, while nearly 12% of output and more than 60% of loans faced risks due to insufficient flood protection, Elderson said.

He argued that adaptation to climate change and mitigation of its causes were both necessary, saying adaptation was needed to make economies more resilient to consequences that could no longer be avoided.

“Adaptation is not optional, it is a necessity for our economies to remain resilient and competitive in the future,” Elderson said.

Elderson also argued that Europe's green transition should be regarded as part of its competitiveness and energy-security strategy rather than as a competing objective.

“The question is no longer whether the global economy will transition to green energy,” he said. “The question is who will be well positioned as we move forward along the transition path.”

Renewable energy and electrification could reduce Europe's dependence on imported fossil fuels and its exposure to geopolitical shocks and energy-price volatility, he said. Electricity currently accounted for only around one quarter of final European energy consumption, leaving considerable scope for further electrification, he said.

Elderson said the economic case for the transition had strengthened as renewable technologies had become increasingly cost-competitive, while countries with greater low-carbon electricity generation had proved less exposed to fossil-fuel price fluctuations during recent energy shocks.

“The case for the green transition is therefore no longer solely an environmental one,” he said. “It is also very much a competitiveness, resilience and security argument.”

He said uncertainty and access to finance remained two major barriers to the investment needed for the transition, with policy instability discouraging long-term commitments and greater uncertainty also causing banks to tighten credit standards.

“This is not a case for rigid policymaking,” Elderson said. “Instead, I am making a case for predictability. The transition requires certainty for long-term planning.”

Europe would require hundreds of billions of euros in additional investment annually, Elderson said, arguing that banks would have an important role but deeper capital markets would also be necessary to finance innovative companies and technologies.

He also warned against reversing legislative commitments on which companies had based investment decisions, saying predictability was important to maintaining a level playing field and encouraging investment.

“Without such predictability, progress will inevitably become both more difficult and more costly,” Elderson said.