Europe this year is baking in extreme heat that has contributed to several deaths and caused the viewing deck of the Eiffel Tower to close. A spokesperson for an association of Italian ice cream makers in Germany told the Rheinische Post the heat wave was making it too hot for ice cream. When the temperature outside gets above 30°C (86°F), people prefer something to drink instead. Partly because of those considerations, the European Central Bank is determined to keep climate change as part of its planning agenda.
European Central Bank Rules Focus On Climate
At a meeting of the International Monetary Fund and the World Bank this week in Portugal, Frank Elderson, a member of the European Central Bank executive board, told the group, “The challenge of nature degradation fundamentally stems from a deeply rooted market failure. Addressing this failure falls primarily within the remit of policymakers, not of central banks. However, from the perspective of our primary (and secondary) mandate, along with further obligations under the EU Treaties, we have a responsibility to evaluate and consider the economic implications of climate change and nature degradation, including both physical and transition risks.”
“The link between heat and key economic indicators such as inflation and gross domestic product is too important to ignore,” Elderson told his colleagues. “We have progressed in understanding that accounting for the climate and nature crises is relevant. If you think about the exceptionally hot summer of 2022, food-price inflation was up between 0.4 and 0.9 percentage points,” which led to “quite a measurable hit on German GDP. So these things are relevant.”
Heat Reduces Food Production In Italy
Bloomberg reports that scientists have found a hotter planet threatens price stability, partly because crops become more difficult to grow successfully, which makes food prices rise. Coldiretti, Italy’s primary organization for farmers and agriculture, warned on July 2, 2025, that the heatwave is having a profound effect on food production. Lombardy in northern Italy produces half of the country’s milk, but production is down 10 percent because of the heat, according to a report by DW.
In Piedmont, Tuscany, and Umbria, where much of Italy’s fruits and vegetables are produced, farmers are covering their crops with tarps to protect them from the heat. Coldiretti reported that hundreds of kilograms of melons have literally been cooked on the vine. Wheat, barley, grapes, and eggplants have also been seriously affected.
Thirteen of Italy’s 20 regions have halted all outdoor work between 11:00 am and 4:00 pm, including Lombardy and Emilia-Romagna, which are where much of Italy’s industry centers are located. Hospitals across Italy have reported a 15 to 20 percent increase in emergency admissions in the past week.
Against that backdrop, the European Central Bank is now strengthening its plans to address economic risks that are linked to changes in the climate. This week it announced it would take into account not just the implications of climate change, but also “nature degradation” when setting monetary policy. The decision represents an “important addition” to the wording used by the central bank, Elderson told the press this week. “The new focus on nature-related risks will eventually feed into various aspects of the ECB’s efforts to ensure price stability and to supervise Europe’s systemically important banks,” Bloomberg reports.
“Given the uncertainties surrounding these risks, continuous scientific input is essential to understanding the impact of the climate and nature crises on our economies. Active collaboration across institutions and borders is essential to enhance our understanding of the economic implications and to deliver on our mandate,” Elderson said.
Science Not Dogma
Astute CleanTechnica readers will note the emphasis on science in his remarks. This is in marked contrast to the approach taken by the Federal Reserve in the United States. While Fed chair Jerome Powell has acknowledged the threat that climate change poses to the US economy and financial system, he has said repeatedly that the Fed does not have a mandate to foster a low-carbon transition. “You heard me say over and over again that we will not be climate policymakers,” Powell said during a press conference in May. “Our role on climate is a very, very narrow one.”
The Fed’s efforts to downplay the relevance of climate change in safeguarding financial stability have also encompassed interventions to water down global standards, including those set by the Basel Committee on Banking Supervision, Bloomberg has reported previously.
But Irene Heemskerk, head of the ECB’s Climate Change Center, told the press earlier this year that Europe’s determination to include climate risk in its financial regulations will not be sidetracked by US interventions. “We always go back to our mandate. We see climate and environmental risk — regardless of any political wind that goes around — as relevant for banks to manage.”
In Europe, achieving net zero emissions is enshrined in law. US Energy Secretary Chris Wright has called the focus on net zero a “terrible” and “sinister” goal. The EU requires companies to disclose environmental, social, and governance metrics, which has spurred outrage among Republicans in Congress. Commerce Secretary Howard Lutnick claims he is willing to deploy “trade tools” to fight environmental requirements that affect American companies.
The European Commission’s competitiveness compass is not cancelling its decarbonization goal, Heemskerk said. “There is still a transition risk,” which requires banks to know whether they’re invested in high-emitting companies, and how they’re managing the associated risks. “Besides, we still face physical risk. This is one of the driest springs ever recorded across parts of Europe.”
There is resistance toward ECB policies that focus on climate and human rights considerations even in Germany, which is Europe’s largest economy. Stiftung Familienunternehmen, a lobbying group dedicated to defending the interests of family businesses, questioned the constitutionality of including those standards in European regulations. Some in other European countries also oppose the rules, which they claim are too burdensome. (Since when is keeping the planet habitable for humans too heavy a burden to bear?) While proposals have been put forward to address those concerns, Heemskerk says organizations like the European Central Bank will continue to pressure companies to supply ESG data.
Backlash
Elderson said that “whilst there’s a backlash out there,” the ECB Governing Council “sticks to its guns and actually adds to that to say we now understand on the basis of the work that has been done that we need to think beyond just what climate means for price stability.” Nature risk “is complicated because there is not one single metric like CO2. You have to look at fish stocks, you have to look at timber, you have to look at the soils, you have to look at water scarcity and water quality,” he said.
In the short term, there will be more research and outreach, of course. “Then we need to ask: what does this mean for our understanding of the economy, for our understanding of inflation? What does it mean for debt sustainability? Whenever we design an instrument or whenever we think about collateral or when we think about tilting of asset purchases at some point in the future, we take this into account,” he said. “If you were to close your eyes to that, you would also miss an important part of credit risk for at least some of the banks that we supervise.”
The difference in approach between the EU and the US is stark. One is evidence based; the other is tied to opinions of talking heads on a television network that styles itself as a comedy channel. The wonder is not that European economic regulators take the financial risks associated with climate change so seriously, it is that in the US, talking heads have so much influence over such important decisions.
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