By David Barwick – FRANKFURT (Econostream) – Nature-related risks are increasingly relevant to central banks because of their potential effects on inflation, financial stability and banks, European Central Bank Executive Board member Frank Elderson said Monday.

Speaking at the COP17 Finance and Biodiversity Day in Yerevan, Elderson said nature degradation could affect the ECB’s mandate through its impact on economic activity and prices.

“[N]ature-related risks are increasingly part of the bread and butter of our work,” he said, adding that nature risks had “featured explicitly in our monetary policy assessment and communication in recent quarters.”

Elderson said ECB analysis showed that 72% of euro area companies depend on at least one ecosystem service, while 75% of euro area corporate lending goes to companies highly dependent on at least one such service.

He pointed in particular to water-related risks, saying research involving the ECB, London School of Economics and Oxford University suggested that a one-in-100-year drought could put as much as 24% of euro area economic output at risk.

“When sufficiently widespread or persistent, the impacts can ultimately affect growth and inflation,” Elderson said.

He stressed, however, that central banks were not becoming environmental policymakers.

“[W]e are – and will remain – climate and nature policy takers,” Elderson said. Nature had become relevant to central banking because “the consequences of its degradation are affecting our mandate.”