The European Central Bank has outlined a new set of priorities to deepen the integration of climate- and nature-related risks across its supervisory, monetary and financial stability functions. The announcement follows the conclusion of the ECB’s Climate and Nature Plan 2024–2025, a two-year roadmap launched in early 2024 to address the accelerating economic and financial consequences of climate change and environmental degradation.

While the ECB highlighted meaningful progress over the past two years, it warned that climate and nature risks are intensifying faster than anticipated. As a result, the central bank will now step up monitoring of banks’ green transition strategies, physical climate risk preparedness and exposure to nature-related risks.

Climate and Nature Risks Embedded Into Core ECB Operations

In its review of the Climate and Nature Plan, the ECB said it has further embedded environmental risk considerations into its core policy toolkit. This includes introducing a climate-related factor into the Eurosystem collateral framework, continuing to reduce the carbon footprint of the Eurosystem’s corporate bond holdings, and contributing to climate stress testing and scenario analysis across the banking system.

The ECB also noted progress in improving banks’ internal capabilities to identify, measure and manage climate and nature-related risks. However, it emphasised that these advances must accelerate as the real-world impacts of climate change increasingly affect asset values, credit quality and macroeconomic stability.

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Greater Focus on Banks’ Green Transition Plans

One of the ECB’s key priorities going forward will be the assessment of banks’ prudential transition plans. Supervisors will focus on whether banks have credible, actionable strategies for aligning their business models with the transition to a low-carbon economy.

This work will include deeper analysis of energy transition pathways, the fiscal and economic costs associated with decarbonisation, and how climate-related risks can be further incorporated into the ECB’s operational and supervisory frameworks. The aim is to ensure that banks are not only disclosing transition intentions, but are capable of managing the financial risks associated with delayed or disorderly transitions.

Intensified Monitoring of Physical Climate Risk

The ECB signalled that it will significantly strengthen its analysis of physical climate risks, reflecting the growing frequency and severity of extreme weather events. These risks increasingly affect loan portfolios, collateral values and insurance coverage, with direct implications for financial stability.

Planned actions include enhanced macroeconomic analysis, improved data availability and more granular monitoring of physical risk exposure across the banking system. The ECB will also assess banks’ operational readiness to manage physical risks, including their ability to incorporate climate hazards such as floods, heatwaves and droughts into credit risk, stress testing and capital planning.

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Nature and Ecosystem Risks Move Higher on the Agenda

Beyond climate, the ECB confirmed that it will intensify work on nature-related financial risks and ecosystem degradation. Particular attention will be paid to water-related risks, given their relevance to agriculture, energy generation, manufacturing and regional economic resilience.

This reflects a growing recognition among central banks that biodiversity loss and ecosystem degradation can transmit systemic risks through supply chains, commodity markets and sovereign exposures.

Climate Risk Seen as Structural Financial Stability Issue

Despite progress made under the 2024–2025 plan, the ECB concluded that climate change and nature loss continue to pose escalating threats to the economy and financial system. The next phase of work will therefore shift from framework development toward deeper supervisory scrutiny, risk quantification and operational integration.

By intensifying its focus on bank transition plans, physical climate risk preparedness and nature-related exposures, the ECB is reinforcing the message that environmental risks are no longer peripheral sustainability issues, but structural drivers of financial stability that require continuous oversight and intervention.

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