MANILA — In a wide-ranging keynote address at the Green Swan 2026 Conference in Manila, Frank Elderson, Member of the Executive Board and Vice-Chair of the Supervisory Board of the European Central Bank (ECB), delivered a stark message to global policymakers, central bankers, and financial leaders: climate change and nature degradation are no longer distant environmental hazards, but undeniable macroeconomic certainties reshaping modern economies.
Speaking on October 19, 2026, Elderson drew heavily on the severe disruptions experienced across Europe during the previous summer to illustrate how escalating ecological shocks are directly influencing inflation, economic growth, and systemic financial stability. Against a backdrop of profound global economic, geopolitical, and technological uncertainty, the ECB official argued that safeguarding long-term prosperity requires viewing the green transition not as an optional burden, but as a fundamental pillar of economic resilience and competitiveness.
A Summer of Extremes Highlights Deep Economic Vulnerabilities
Elderson grounded his address in the tangible realities of the recent past, pointing to the summer of 2026 as the warmest ever recorded in Western Europe. The season brought severe droughts, devastating wildfires, widespread water scarcity, and mounting pressure on ecosystems throughout the continent.
The economic fallout from these climate events was immediate and pervasive. Major European rivers plummeted to exceptionally low water levels, crippling vital transport networks, industrial manufacturing, and energy production. At the same time, destructive wildfires wiped out vast swathes of land, forcing critical economic sectors to halt operations.
Highlighting Europe’s unique vulnerability, Elderson noted that the continent is warming faster than any other globally, at more than twice the average rate. The human toll was equally devastating, marked by tens of thousands of excess deaths linked directly to extreme summer heatwaves.
Beyond the visible destruction of infrastructure and loss of life, the crisis underscored the deep reliance of modern economies on healthy natural capital. Water scarcity choked households, agriculture, and heavy industry alike. Elderson emphasized that healthy forests, soils, rivers, wetlands, and oceans are far more than mere environmental assets; they provide the foundational ecosystem services upon which everyday economic activity depends—services that are frequently overlooked until subjected to severe stress.
Taken together, these events delivered a powerful macroeconomic lesson: climate and nature are fundamentally embedded within economic systems rather than acting as external shocks. Consequently, they are rapidly evolving into primary structural drivers of economic and financial outcomes.
Climate and Nature Crises as Systemic Threats
Addressing the broader implications for financial authorities, Elderson urged central banks and supervisors to look beyond individual, isolated disasters. When a flood, drought, or wildfire strikes, public and market attention naturally focuses on the immediate event, where financial damages often appear manageable when viewed in a vacuum.
However, Elderson warned against focusing solely on individual symptoms while ignoring the underlying systemic disease. The true danger lies in how climate and nature-related shocks accumulate, interact, and reinforce one another over extended periods, leaving lasting structural scars on the economy.
Drawing on an observation by economist and author Simon Sharpe, Elderson highlighted the delicate balance required by risk managers and central bankers. While scientists are trained not to overstate risks, risk managers are trained not to underestimate them. In an environment defined by deep uncertainty, policymakers constantly navigate the trade-off between dismissing genuine risks prematurely and raising false alarms. Elderson stressed that the primary objective for central banks is to minimize uncertainty through superior data, robust analysis, and proportionate policy responses, even if the future cannot be predicted with absolute certainty.
As global temperatures continue to rise and physical hazards intensify, the economic consequences are becoming increasingly dynamic. Extreme heat degrades labor productivity, droughts undermine agricultural yields and supply chains, and floods inflict lasting damage on public infrastructure. Consequently, economic output can remain depressed below trend for years following a major event.
Crucially, these physical shocks are no longer confined to growth and output; they are increasingly driving inflation dynamics. The extreme temperatures and low river levels of the 2026 summer directly disrupted Europe’s energy systems, driving up wholesale electricity prices, while ongoing extreme weather continues to exert upward pressure on food prices. Furthermore, these risks are inherently cross-border, with food price shocks, supply chain bottlenecks, and migration pressures quickly transcending national frontiers.
Nature-related risks operate through remarkably similar channels. Recent ECB research indicates that severe water scarcity alone threatens up to 24 percent of the euro area’s total economic output, while substantial shares of regional economic activity and commercial bank lending remain directly exposed to physical flood risks.
Because these structural pressures directly impact productivity, growth, price stability, and the overall resilience of the financial system, Elderson argued that integrating climate and nature risks falls squarely within the core mandate of central banks. This requires modernizing macroeconomic models and forecasting frameworks to accurately track the changing structure of the economy. Furthermore, he highlighted international forums like the Green Swan Conference as essential mechanisms for fostering cross-border cooperation and collective resilience in an increasingly fragmented geopolitical landscape.
Economic Resilience Demands Both Adaptation and Mitigation
To effectively confront these structural risks, Elderson emphasized the necessity of a two-pronged strategy combining climate adaptation and mitigation. Because historical greenhouse gas emissions have already warmed the planet and set irreversible physical changes in motion, societies, households, corporations, and financial institutions have no choice but to undertake pre-emptive adaptation measures.
Elderson called for the rapid scaling up of advanced early-warning systems, climate-resilient infrastructure, comprehensive water management, flood defenses, energy-efficient cooling technologies, and reinforced urban and transport networks. While various European regions and cities have already initiated vital local resilience projects, Elderson stressed the urgent need to accelerate and expand these efforts globally.
However, adaptation alone remains insufficient. Without aggressive mitigation to curb ongoing emissions, the scale and financial cost of required adaptation will escalate exponentially, eventually rendering adaptation impossible in vulnerable low-lying coastal regions and small island states. Mitigation addresses the root causes of the crisis, ensuring that future adaptation costs remain manageable while safeguarding economic stability during the transition.
The Green Transition as a Core Competitiveness Strategy
A central theme of Elderson’s address was the critical nexus between the green transition and economic competitiveness—a debate currently at the forefront of European policy discussions, and one where Asian economies in countries like Japan, the Philippines, and beyond are providing valuable real-world lessons.
Elderson pushed back against the persistent narrative in Europe that views energy security, competitiveness, and the green transition as competing policy objectives. He argued that firms cannot maintain long-term competitiveness if their core operations remain perpetually vulnerable to climate and nature-related shocks. Instead, resilience and energy security have become non-negotiable preconditions for commercial viability.
The fundamental economic question, Elderson noted, is no longer whether the global economy will transition toward green energy, but rather which nations and corporations will position themselves advantageously along the way. Ultimately, the transition will determine who owns and finances the productive assets of the future economy, and who is left holding stranded, high-carbon assets.
The economic rationale for clean energy and decarbonization has strengthened significantly. Europe’s heavy historical reliance on imported fossil fuels has exposed households and businesses to severe geopolitical shocks and volatile price swings. Expanding renewable energy generation and accelerating electrification—which currently accounts for only around a quarter of final energy consumption across Europe—offers a direct pathway to enhanced strategic autonomy and energy security.
Renewable technologies have achieved cost parity and are frequently cheaper than new fossil fuel alternatives. Countries like Spain, where the rapid expansion of solar generation has insulated domestic electricity prices from volatile global gas markets, demonstrate the tangible resilience benefits of low-carbon power systems. Beyond energy, preserving natural capital and safeguarding reliable water resources protects agricultural productivity and long-term industrial competitiveness.
Consequently, Elderson advocated for what he termed a "smart transition"—a comprehensive strategy placing sustainable competitiveness at its core, combining mitigation and adaptation while channeling investments into the technologies, skills, infrastructure, and institutions necessary to drive prosperity while minimizing systemic risk.
Overcoming Investment Barriers: Uncertainty and Access to Finance
Despite the clear economic rationale, Elderson addressed the critical question of why the pace of transition investment remains insufficient. Economic research consistently highlights two primary obstacles: broad uncertainty, encompassing political, economic, and regulatory dimensions, and constrained access to finance.
Long-term investments in industrial transformation, energy infrastructure, and electrification require massive upfront capital commitments and extended planning horizons. Policy instability drastically increases the cost of waiting, causing investors to hesitate and stalling broader economic progress. Evidence from euro area bank lending surveys confirms that heightened uncertainty dampens demand for green investment loans while prompting commercial banks to tighten credit standards and reduce risk appetite.
To unlock private capital, Elderson called for regulatory predictability and stable rules of the game, rather than rigid policymaking. At the same time, meeting the massive financing requirements—amounting to hundreds of billions of euros annually across Europe alone—demands deeper capital markets to complement traditional bank lending, alongside robust international capital flows and cross-border cooperation. Maintaining a level playing field through common international standards and credible legislative commitments is essential to ensure that investing firms are not placed at a systematic disadvantage.
Concluding his address, Elderson reiterated that while climate change and nature degradation represent inescapable certainties in an uncertain world, human response remains a matter of choice. By acting proactively through coordinated adaptation, rigorous mitigation, and sustained investment, economies can transform environmental challenges into opportunities to build more productive, resilient, and prosperous societies.
