European Central Bank: Water scarcity is the most significant natural risk to the European economy

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Frank Elderson, a member of the executive board of the Luxembourg-based EU bank, reported on the research at a presentation in Leiden, where he said that the ECB is trying to better understand how climate change and nature-related risks affect banks’ balance sheets and the wider economy. He said that surface water scarcity alone threatens almost 15 percent of the euro area’s economic output. Agriculture is the sector most exposed to this, as it would suffer the largest production losses due to the decline in surface water resources. Agriculture also has to reckon with the risks associated with water pollution and flooding.

Elderson added that droughts will become more frequent due to the climate crisis

For this reason, efficient water management will be key to maintaining production. “There remains a risk that production will have to be reduced during periods of drought. Some industrial processes may become economically unviable and may need to be relocated,” the ECB executive board member added in his report.

MTI