Interview with Frank Elderson, ECB Executive Board Member

In an interview conducted by Eva Smal on April 15, 2026, Frank Elderson, who serves as a member of the Executive Board of the European Central Bank (ECB) and vice-chair of the Supervisory Board, addressed the common perception that the ECB does not participate in climate policy.

The Role of the ECB in Climate Policy

Elderson clarified that while the ECB does not create climate policies—responsibilities that lie with elected governments—its role necessitates consideration of climate-related issues. The ECB’s primary aim is to maintain price stability and ensure the financial soundness of banks. Ignoring the impacts of the climate crisis, which have already affected inflation rates, would be a failure of duty.

He provided a specific example, noting that disruptions to navigation on the Rhine in 2022 led to a 0.7 percentage point increase in food price inflation. This highlights the necessity for central banks to factor in environmental changes and their economic consequences when formulating monetary policies.

Understanding Economic Risks

Elderson stressed the importance of banks recognizing all pertinent risks, including those stemming from climate change. For instance, mortgage lenders must assess the creditworthiness of properties in flood-prone areas, and energy providers relying on water for cooling need to account for changing river conditions.

He emphasized that the ECB cannot dismiss climate-related issues merely as political matters; doing so would invite criticism for neglecting essential responsibilities.

Legal Obligations and Economic Policies

In light of some interpretations suggesting that the ECB could do more in combating climate change, Elderson pointed out the EU Treaty mandates the ECB to support the general economic policies of the EU, provided it does not compromise its primary goal of price stability. Therefore, initiatives that enhance climate considerations while still maintaining price stability should be pursued.

Examples include integrating climate factors into economic models and considering environmental alignment when evaluating collateral provided by banks seeking loans.

Evaluating Banks on Climate Issues

When asked about banks’ progress regarding climate matters, Elderson noted a significant improvement over the past years. In 2019, only 25% of banks showed serious engagement with climate risks; by 2024, nearly all banks under ECB supervision had adequately assessed their climate-related exposures.

However, he acknowledged that certain gaps remain, as some banks have a fragmented understanding of risks across different jurisdictions and have yet to fully address biodiversity loss.

Future Perspectives

Elderson discussed the need to ensure banks manage their investments responsibly, particularly regarding fossil fuel financing. While the ECB does not dictate lending decisions, it requires banks to manage associated risks effectively.

He reiterated the inevitable transition to renewable energy, supported by significant future investments, presenting an opportunity for banks to reassess their roles in the evolving economic landscape.

Lessons from the Financial Crisis

Reflecting on the 2008 financial crisis, Elderson recognized the lasting impact of that period but assured that substantial measures have been taken to strengthen the banking sector. The establishment of European banking supervision and new frameworks ensures that shareholders, not taxpayers, bear losses in the event of a bank failure.

Global Financial Landscape and Regulation

With a focus on preserving a level playing field in international banking, Elderson acknowledged the importance of implementing Basel agreements to manage capital requirements while avoiding a regression in regulations.

He emphasized the necessity of advancing towards a complete banking union and capital markets union to enhance resilience and competitiveness within the European financial system.

Concern Over Non-Bank Lending

Addressing concerns regarding private credit and non-bank financial institutions, Elderson recognized the importance of diverse financing sources for economic resilience. However, he cautioned that oversight of non-bank entities remains less stringent compared to traditional banks, which necessitates careful monitoring as the sector grows.

Commitment to Climate Awareness and Financial Stability

Setting the tone for future regulatory measures, Elderson expressed determination to continuously raise awareness about the interplay between climate policy and sound banking practices, ensuring that the lessons learned from the past are not forgotten.