The European Central Bank published its expanded climate and nature work plan for 2024 and 2025 in January, setting out a more ambitious supervisory and policy agenda that for the first time formally incorporates nature-related financial risks alongside the climate-risk framework that the ECB has been building across its prudential and monetary-policy functions. The plan marks a meaningful evolution in the ECB's environmental agenda, extending the scope of what the institution considers a financial stability risk beyond the greenhouse-gas emissions focus that has dominated its climate work since 2020.
The inclusion of nature-related risks reflects a growing international consensus, shaped in part by work from the Taskforce on Nature-related Financial Disclosures and the Network for Greening the Financial System, that biodiversity loss and ecosystem degradation represent systemic financial risks of a magnitude comparable to those from climate change. Banks with large exposures to sectors highly dependent on ecosystem services — agriculture, fisheries, forestry, water utilities — face physical risks that could materialise rapidly if nature loss accelerates beyond current trajectories.
NATURE RISK, TRANSITION PLANS, AND GREENER POLICY OPERATIONS
Under the 2024–2025 agenda, the ECB will assess how supervised institutions are identifying and quantifying their exposures to nature-related risks, examining whether banks' internal models and stress-testing frameworks adequately capture the potential impact of ecosystem degradation on collateral values, counterparty creditworthiness, and business viability. Alongside nature-risk work, the ECB will continue its in-depth scrutiny of banks' climate transition plans, focusing on whether institutions can present credible, time-bound strategies for reducing financed emissions in line with Paris Agreement-consistent pathways.
The plan also encompasses further steps towards greening the ECB's own monetary-policy operations. The central bank has already begun tilting the reinvestment of its corporate-bond holdings towards issuers with stronger climate credentials, a measure that has drawn both support from sustainability advocates and criticism from council members who argue that asset-purchase decisions should be driven solely by monetary-policy objectives. The 2024–2025 plan signals that work in this area will continue, even as the political sensitivity around the central bank's climate role remains unresolved.
CAPITAL ADD-ONS ALREADY APPLIED SINCE NOVEMBER 2022
The ECB had already demonstrated its willingness to deploy supervisory tools with financial consequences for banks that fail to manage climate risk adequately. Since November 2022, the central bank has been applying additional capital requirements — Pillar 2 add-ons under the Basel framework — to institutions that have not made satisfactory progress in embedding climate risk into their governance, risk appetite statements, and internal capital-adequacy processes. That precedent transforms the 2024–2025 work plan from a signalling exercise into a programme with real balance-sheet implications for laggards.
For the European banking sector, the expanded agenda reinforces the message that climate and nature risk management has transitioned from a voluntary corporate responsibility concern to a mainstream supervisory priority. Banks that have yet to develop robust methodologies for scenario analysis, transition risk assessment, and nature-dependency mapping face growing supervisory pressure as the ECB ratchets up the intensity of its thematic reviews. Institutions that invest now in building credible frameworks will find themselves better positioned not only with the ECB but also with investors and counterparties who are themselves facing growing pressure to align portfolios with sustainability standards.