Elderson: banks' climate scenarios cover all their material risks in only about 15% of cases

Serguey Asael Shinder15 October 2026, 07:082 min read

Frank Elderson, ECB Executive Board member and Vice-Chair of its Supervisory Board, opened a joint ECB–Bank of England conference on supervising climate risk in a non-linear world in Frankfurt on 14 October 2026.

Known knowns. Banks and supervisors can now measure a good deal of climate and nature (C&N) risk, Elderson said. Since 2022 the average share of interest income that significant supervised banks earn from carbon-intensive sectors has stayed consistently above 70%. Supervisors know banks' initial estimates of transition scenarios' capital impact, the energy performance of financed property and the share of exposures in areas vulnerable to physical risk.

Known unknowns — and a gap. Tipping points exist but their timing does not; compound events such as drought with heatwave can amplify damage; and future C&N impacts are by definition absent from historical data. Scenarios are the indispensable tool, Elderson said, but they risk becoming "tunnel vision." The ECB found that climate stress tests and scenario analysis used in banks' internal capital assessments cover all the risk drivers the banks themselves deem material in only around 15% of cases. Many global climate models, for example, do not directly represent feedback from thawing permafrost.

Unknown unknowns. Some interactions between climate, ecosystems, economies and markets cannot be measured because the relevant outcomes are not yet known. Elderson cited evidence that the crises are unfolding faster than expected — the Arctic warming almost four times and Europe about twice the global average, record ocean heat — and argued that the answer is resilience built before shocks: enough capital, liquidity, operational capacity and strategic flexibility, plus a risk-sensitive reaction function.

Beyond climate. The same framework applies to AI-driven cyber risk, demographic change and quantum computing, where "harvest now, decrypt later" makes today's encrypted data a future risk. European banking supervision's 2026–28 priorities already treat heightened uncertainty as a cross-cutting challenge.

Source: European Central Bank, keynote speech by Frank Elderson, "Ensuring resilience in the face of uncertainty" — https://www.ecb.europa.eu/press/key/date/2026/html/ecb.sp261014~e4ca33588e.en.html