In the summer of 2025, German enterprises were cutting production not due to lack of orders or an energy crisis, but because barges could not navigate the shallowed Rhine. In Romania, the drop in Danube water levels forced the shutdown of both reactors of the country's only nuclear power plant, Cernavodă. In Hungary, the Paks station had to be shut down for the first time in 44 years. Three different countries, three technical failures — and one common cause: water, which has become scarce.
It is precisely these stories that the European Central Bank is now trying to translate into figures that bankers understand — credit losses. Frank Elderson, a member of the ECB's executive board, told The Guardian that the institution is strengthening its assessment of financial risks related to the destruction of "ecosystem services" — water resources, soil fertility, pollination and biodiversity, on which economic activity depends.
The logic is simple yet unusual for a central bank: if a farm loses its harvest due to depleted soil, a port stands idle due to a shallowed river, and an insurance company pays out increasingly more due to floods — this is not abstract ecology, but a specific borrower who is servicing debt worse.
"Risks associated with the degradation of natural ecosystems can have significant economic and financial consequences. They affect credit risks, economic growth rates, inflation and in the long term can undermine financial stability," Elderson said.
Research that will link drought to bank balance sheets
According to an ECB representative, research is currently being prepared that should show exactly how ecosystem degradation translates into credit losses for eurozone banks. It is planned to be released by the end of the year. This is no longer a "what if" scenario — but an attempt to calculate exactly how many bad loans will appear in portfolios if rivers continue to shallow and soils continue to be depleted.
Notably, the interview was recorded before the large-scale forest fires in France and Spain this summer — but according to Elderson, the increase in such catastrophes only confirms the relevance of the calculations, not refutes them.
Political headwinds, same course
A separate issue is that the ECB continues this work despite a shift in the political climate across the ocean. After Donald Trump's return to power, the United States withdrew from the international network of central banks on climate risks (NGFS). Elderson emphasized that European banks, despite this, are not abandoning their assessment of climate and nature-related risks.
"I said in an earlier interview: if you destroy nature, you destroy the foundation on which our economies depend. This caught people's attention. This is not about some 'hippie culture' or romantic fascination with nature. This is a question of fundamental economics. This is a question of financial stability and price stability," Elderson said.
What this means for an ordinary loan
This is where the conflict of interest begins that the ECB is trying to resolve in advance. If banks formally recognize climate and nature-related risks as part of credit analysis, this logically leads to the conclusion that loans to farms in arid regions, port operators on shallowed rivers, or energy companies dependent on water cooling become "more expensive" in terms of risk management. And more expensive risk for a bank sooner or later turns into higher rates or stricter conditions for the borrower — that is, for specific businesses and the people who work in them.
- Romania shut down both reactors of its only nuclear power plant, Cernavodă, in late July due to a critical drop in Danube water levels caused by severe drought.
- Due to record-low water levels in the Danube, Hungary's only nuclear power plant, Paks, had to be shut down for the first time in 44 years of its existence.
- The water level in the Rhine dropped to nearly the lowest mark in the last eight years due to extreme heat and drought in Europe, forcing some German enterprises to reduce production.
The question that remains open until the end of the year: will the ECB's research show specific loss figures so convincingly that European banks will start factoring in "nature risk" in credit costs en masse — or will this again remain a topic for reports, until the next shallowed Rhine stops the next factory.
