Frank Elderson Highlights Need for Climate Resilience Amidst Growing Financial Uncertainty
ECB Board Member Frank Elderson emphasized that banks must adapt risk management frameworks to account for the non-linear impacts of climate and nature-related crises.
By Orion Desk
Frank Elderson noted that while banks have improved their ability to measure physical climate damages, many risks remain difficult to quantify due to their forward-looking nature. He warned that traditional models relying solely on historical data may fail to capture the disproportionate effects of interconnected climate and nature crises.
To address these known unknowns, Elderson advocated for the increased use of scenario analysis as a tool to explore plausible futures rather than precise forecasts. By identifying vulnerabilities and testing potential transmission channels, institutions can better manage financial resilience in an environment defined by radical uncertainty.
Originally published by European Central Bank
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