ECB Says Water Is Top Nature-Related Risk to European Economy

(Bloomberg) -- Water has emerged as the single biggest nature-related risk to euro area economy, according to the European Central Bank and researchers at the University of Oxford.

Surface water scarcity alone puts almost 15% of the euro area’s economic output at risk, Frank Elderson, a member of the ECB’s Executive Board, said on Thursday. Agriculture is the most exposed sector because it would suffer the largest proportional output losses from a decline in surface water, he said. He also pointed to risks associated with water pollution, as well as flooding.

The ECB is trying to get a better sense of how climate change and nature-related risks will hit the balance sheets of banks, as well as the wider economy. Elderson, who spoke in the Netherlands, said Spring 2025 is on track to become the driest ever recorded in the country, and that droughts are set to become more frequent due to the climate crisis.

“Effective water management will thus be crucial for sustaining production,” he said in a speech in Leiden. “However, the risk persists that during periods of drought, production might need to be scaled down. Some industrial processes may become economically unviable and might need to relocate.”

The ECB will publish a blog post on Friday with some of the preliminary results of its work at the University of Oxford, Elderson said.

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