Elderson on Nature’s Role in Economy
Frank Elderson, a senior figure in the European Central Bank’s executive board, has issued a stark warning that the climate emergency and the rapid decline of natural systems are emerging as major threats to the global economy. He emphasized that the ECB is intensifying its monitoring of the financial dangers linked to the erosion of ecosystem services—natural processes and resources essential for human activity and economic operations.
Elderson highlighted that these services, which underpin much of the economy, are in sharp decline. This trend is deepening the dual crises of climate change and environmental degradation. As the ECB’s key supervisory body, the bank must carefully evaluate how these changes could ripple through the financial sector, affecting credit risk, economic growth, and the stability of prices.
Ecosystem Services and Financial Risk
Ecosystem services cover a wide range of functions that natural systems provide. For example, water can serve as a raw material for manufacturing, generate electricity through hydropower, or support transportation networks. Additionally, these systems host marine life crucial for food production and create spaces for leisure and tourism.
Elderson warned that the loss of these essential natural assets could trigger severe economic and financial risks, potentially leading to long-term financial instability. He made it clear that addressing environmental and climate threats is not a fringe issue, but a fundamental part of economic and financial strategy.
The ECB, which oversees major European banks, is actively developing a program to evaluate how the continued degradation of natural systems could lead to credit losses in the eurozone. The bank plans to unveil a detailed report later this year, outlining potential scenarios and pathways for ecosystem collapse and their implications for credit dynamics.
Elderson, a Dutch lawyer and central banker, was a key architect in the establishment of the Network for Greening the Financial System (NGFS) in 2017. This global coalition, consisting of over 114 central banks and financial supervisors, focuses on managing risks associated with climate change. He served as the organization’s founding chair and played a pivotal role in shaping its mission.
The green financial initiative has encountered resistance in the U.S. under the Trump administration, which chose to distance itself from the NGFS. withdrew from the group, leaving Europe to lead the charge in addressing environmental risks without the involvement of the world’s largest economy. Despite this setback, Elderson noted that European banks continue to take the issue seriously and are committed to action. He remarked that it would be rare to find a European bank today that genuinely believes these risks are irrelevant.