The Council and the European Parliament reached a provisional deal on a regulation concerning new rules aimed at combating cross-border unfair trading practices in the agricultural and food supply chain.
This regulation aims to improve cooperation between EU authorities responsible for enforcing rules on unfair trading practices in the agricultural and food supply chain. It is part of the EU’s efforts to support farmers’ position in the supply chain.
“I am happy that we have reached a compromise with the European Parliament on the proposal on unfair trading practices in the food supply chain in relation to the cooperation between member state authorities. This does not change the directive on unfair trading practices, but this compromise will ensure a smoother cooperation across member states on enforcement, without adding unnecessary bureaucracy for the agri-food sector.”

Jacob Jensen, Danish Minister for Food, Agriculture and Fisheries

Main elements of the agreement
The agreement sets up a comprehensive set of rules for cross-border cooperation against unfair trading practices in business-to-business relationships within the agricultural and food supply chain. It improves transnational cooperation in cases where suppliers and buyers are located in different member states.
The regulation introduces a mutual assistance mechanism, which would enable national enforcement authorities to ask for and exchange information or to collaborate on investigations related to unfair trading practices. It will also allow them to coordinate enforcement actions and notify other member states about decisions related to unfair trading practices.
Furthermore, the new piece of legislation introduces rules on the covering of costs in cases of mutual assistance, on data protection and confidentiality of information to ensure that suppliers remain safe from retaliation.
The legislation also establishes a mechanism for coordinated action in cases of large-scale cross-border unfair trading practices involving at least three EU countries. In such cases, a member state would be designated to coordinate the response.
The regulation contains rules for cooperation between member states in cases of unfair trading practices by buyers from outside the EU, in order to better protect European farmers.
Next steps
The provisional agreement will now be endorsed by the Council and the Parliament, before being formally adopted.
Background
In 2019, the directive on combating unfair trading practices entered into force with the aim of addressing imbalances in bargaining power between suppliers and buyers of agricultural products. In particular, its goal is to protect farmers who, for instance, sell their products to large supermarkets and food processing companies.
Based on the experience gained since then, the Commission considered that the cross-border dimension of unfair trading practices needed to be addressed. In fact, on average, around 20% of agricultural and food products consumed in an EU member state come from another member state.
The Commission published its proposal in December 2024, as part of the EU’s efforts to improve farmers’ position in the agrifood supply chain. The proposed rules also directly reflect several recommendations of the strategic dialogue on the future of EU agriculture and respond to some of the most pressing challenges that the agricultural sector faces.
 
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Blog post by Hites Ahir, Nicholas Bloom, Davide Furceri
Amid rising geopolitical rifts and trade tensions, global economic uncertainty has surged, yet sentiment about economic prospects remains positive
Major policy shifts this year have been adding to unknowns about the future and policy decisions, according to our World Uncertainty Index, which has doubled since January.
Uncertainty has surged to an exceptionally high level globally, and it’s likely here to stay, as the IMF noted during the recent Annual Meetings.
To better understand what causes this and what it reveals, we developed a new subcomponent of that measure, the World Policy Uncertainty Index, which, like its counterpart, is drawn from textual sources. Our new gauge tracks reports by the Economist Intelligence Unit by tallying country-level references to “uncertain,” “uncertainty,” and “uncertainties” in passages related to “policy,” “policymaking,” as well as words related to politics, such as “election,” “government,” and “vote.” It covers 71 advanced countries, emerging markets, and developing economies.
The Chart of the Week shows that a recent record monthly level for policy uncertainty was accompanied by relatively upbeat readings for our World Sentiment Index—echoing recent IMF forecasts that the global economy remains resilient and is slowing only modestly. This resilience can be attributed to improved policies, especially in emerging markets, alongside better business adaptability—but elevated uncertainty may be a new normal.
In addition, despite high uncertainty, beliefs about current and future economic prospects remain positive. Our sentiment index, which tracks the same 71 economies in Economist Intelligence Unit reports, uses word lists developed in a 2016 paper by Herman Stekler and Hilary Symington to assess views of the economic outlook. The approach groups and weights terms ranging from positives, like “solid” and “steady,” to negatives, such as “crisis” and “recession.” Index levels are negative during major global recessions and spikes in uncertainty—such as the global financial crisis and the pandemic. Although the index temporarily dipped earlier this year, it remains positive and above the historical average.
—For more, see “Uncertainty about Uncertainty,” in the September 2025 issue of Finance & Development and a related 2023 blog, “Global Economic Uncertainty Remains Elevated, Weighing on Growth.” The methodology is based on a February 2022 National Bureau of Economic Research working paper. Nicholas Bloom is a professor of economics at Stanford University, and a co-director of the Productivity, Innovation and Entrepreneurship program at the National Bureau of Economic Research.
 
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At the COP30 UN Climate Change Conference in Belém, Brazil, from 10-21 November, the European Union will reaffirm its strong commitment to climate action. The EU is dedicated to paving the way toward a global transition that is clean, fair, and resilient. This transition aims to provide clean and affordable energy, create business opportunities, stimulate growth, enhance industrial competitiveness, and leave no one behind.
The conference is a pivotal moment to step up action to meet the Paris Agreement goals set ten years ago. In these times, it is important to show up for the multilateral system and our partners across the world, in particular the small islands and least developed countries that are the most affected by climate change. The EU will continue leading these efforts, acting as a reliable and ambitious partner that is delivering at home, driving cooperation and decarbonisation abroad, and staying the course to achieve climate neutrality by 2050.
European Commission President, Ursula von der Leyen, said: “At COP30 this week, we will underline our strong commitment to the Paris Agreement. The global clean transition is ongoing and irreversible. It is our priority to ensure that this transition is fair, inclusive and equitable. In Belém, we will listen to our global partners and discuss the key issues. To keep our shared goal in sight, we must recognise diverse national realities and work together to deliver.”
At COP30, the EU will call for a collective response to the ambition and implementation gaps of climate targets, accelerating the global clean energy transition, minimising the extent and duration of any overshoot beyond 1.5°C, and the full implementation of COP commitments such as the first Global Stocktake (GST) under the Paris Agreement and the Global Pledges to triple the installed capacity of renewables and double the global rate of energy efficiency improvements by 2030. These proposed outcomes are aligned with the recently adopted Global climate and energy vision, the EU’s external engagement strategy with global partners where the focus lies on driving the global transition away from fossil fuels towards renewables, energy efficiency, and climate resilience, with the Union remaining committed to supporting partner countries in fulfilling these goals.
This year’s conference should notably follow up on the GST and the recent UN Synthesis Report on the new national climate plans, known as Nationally Determined Contributions (NDCs), building on the progress achieved and setting out how to step up and accelerate the implementation of COP28  commitments.
All COP Parties were requested to submit their new NDCs ahead of COP30. The new EU NDC, which will now be submitted to the United Nations Framework Convention on Climate Change (UNFCCC), is to reduce net GHG emissions by 66.25 –72.5 % below 1990 levels by 2035, covering all sectors of the economy and all GHGs. This is an ambitious milestone on the path to a 90% net reduction by 2040 compared to 1990 levels, leading the way towards EU climate neutrality by 2050 and aligned with Paris Agreement targets.
On carbon pricing and markets, the COP30 Presidency intends to launch the Open Coalition for Compliance Carbon Markets. This Coalition should bring together countries and jurisdictions who are either already implementing carbon pricing mechanisms or making a tangible progress towards that goal.
The EU negotiating team will also work towards reaching an agreement on the climate adaptation indicators under the UAE–Belém Framework for Global Climate Resilience, helping all countries track progress and strengthen preparedness.
Another important element in this COP30 will be climate finance. The ‘Baku to Belém Roadmap’ to be presented by Azerbaijan and Brazil will be a strategic opportunity to scale up finance for developing countries to at least $1.3 trillion per year by 2035, with engagement from all actors within and beyond the UNFCCC, and with particular attention to the needs of the most vulnerable, especially Least Developed Countries and Small Island Developing States. As the world’s largest contributor of public climate finance, the EU and its Member States together provided in 2024 €31.7 billion from public sources and mobilised a further € 11 billion in private finance.
Members of the College present at the COP30
On Thursday, 6 November, President von der Leyen will participate in the General Plenary of the World Leaders’ Summit, which officially starts the COP30 conference.
On Friday, 7 November, President von der Leyen will take part in a ‘High-Level Roundtable on Industry Decarbonisation’, which will discuss how to guide the world industry towards low and clean energy sources. Later, President von der Leyen will participate in a dedicated session to the energy transition.
Executive Vice-President Ribera participated this week in the ‘COP30 Local Leaders Forum’ in Rio de Janeiro, ahead of the high-level segment in Belém. Commissioner Hoekstra will again lead the EU negotiating team at COP30, working closely with the Danish Council Presidency and Member States to deliver on the negotiating mandate approved on 21 October. Commissioner Jørgensen will participate to the COP30 Energy Days and attend other high-level energy related events, including co-chairing the Global Methane Pledge with Canada.
In the margins of the conference, the members of the College in Brazil will hold meetings with national authorities, representatives from international organisations, civil society, and the private sector.
Background
Under the 2015 Paris Agreement, 194 countries agreed to keep average global temperature change well below 2°C and as close as possible to 1.5°C by the end of the century. To do this, they agreed to submit NDCs which represent their individual emissions reduction targets. The European Union is firmly committed to the Paris Agreement, having already cut its greenhouse gas emissions by 37% since 1990, while growing its economy by almost 70%, accounting only for 6% of global emissions. This steady progress keeps Europe firmly on track to cut emissions by at least 55% by 2030 and to achieve climate neutrality by 2050. Such transition is supported by a robust package of legislative measures, including the expansion of carbon pricing, the Social Climate Fund, and unprecedented financial support from the Innovation and Modernisation Funds.
 
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By Petra Köhler-Ulbrich, Yuma Schuster and Nikoleta Tushteva

Banks consider the climate performance of firms and buildings in their lending policies. The euro area bank lending survey shows that lower climate risks tend to improve credit conditions. Meanwhile, green investments increase loan demand from firms and households.

Reducing a firm’s carbon emissions or improving the energy efficiency of a building can help businesses and households to get a loan from the bank at more favourable conditions, the euro area bank lending survey (BLS) finds. According to the banks surveyed, the climate performance of businesses and buildings also affects loan demand from firms and households.[1] In this blog post, we summarise these trends and explore what is behind them.
Climate risk and bank lending to firms
How do climate risks affect the lending conditions banks offer to green firms, high-emitting firms and those in transition to green? Overall, our survey shows that banks’ credit standards (i.e. their internal guidelines and loan approval criteria), terms and conditions for loans are notably affected by the climate performance of their clients. Since we introduced this question to the bank lending survey in 2023, banks have reported an easing impact of climate risk and measures to cope with climate change on their credit standards, terms and conditions for green firms and those in transition.
To put these findings into perspective, we need to take a closer look at how the BLS works. Every quarter, we ask about 150 banks from all euro area countries if they have tightened or eased their credit standards, terms and conditions for loans to firms and households, or whether they have kept them broadly unchanged compared with the previous quarter. The survey also asks banks whether the demand they see for loans has increased, decreased, or remained broadly unchanged. Banks also report on the factors which have driven such developments, as well as on their expectations for the future. In addition, the BLS asks banks some topical questions, which include the climate change-related ones we are discussing in this post.[2]
Back to our findings: as mentioned above, we see that climate risk and measures to cope with climate change had an easing effect on euro area banks’ credit standards for loans to green firms and companies in transition. In fact, in the July 2025 BLS a net percentage of banks of 20% mentioned an easing impact on their credit standards for green firms, and 13% for firms in transition over the past 12 months (Chart 1, panel a).
By contrast, climate risk had a tightening impact for loans to high-emitting firms, which have not made much progress with the green transition or have not even started it yet (reported by a net percentage of banks of 35%).[3] This suggests that banks offer a “climate discount” in their risk assessment to green firms and those in transition. Also, they seem to charge a “climate risk premium” for high-emitting firms.[4] In other words, banks seem to grant loans at more favourable terms to environmentally friendly companies and those investing to become greener. That suggests that banks consider climate risks and measures to cope with climate change in their overall risk management.
We will now take a closer look at the different factors banks consider when giving out loans to firms. In their lending policies, banks assess firms’ transition risk, affecting the firm-specific situation and outlook, for instance regarding creditworthiness and the value of firms’ assets. They also take into account firms’ physical risk, which can affect the value of collateral and the company value more generally (Chart 1, panel b).[5] The former are risks that arise from moving towards a carbon-neutral economy, which can lead to financial losses linked to adjustment processes. The latter captures firms’ exposure to a changing climate, including more frequent or severe weather events, and dwindling ecosystems.
Based on the survey results from 2023-25, both transition risk and physical risk had a tightening impact on bank lending policies to firms.
This impact could deepen in the future. Banks expect physical risk to tighten their credit conditions for firms in net terms over the next 12 months: 18% of banks expect a tightening impact, while 8% expect an easing impact. Meanwhile, banks expect a broadly zero net impact of transition risk over the next 12 months, with an equal share of banks (16%) expecting a tightening and an easing impact of transition risk. This difference of opinion between banks may hint at uncertainty about the future impact of the green transition.
Still, we see a striking shift on transition risk, with banks expecting a broadly unchanged impact of transition risk on their lending conditions over the next 12 months. This is significantly lower than the reported realised impact in the previous two survey rounds (Chart 1, panel b). It may be related to firms’ progress on the green transition. Banks also reported a beneficial impact of climate-related fiscal support over the past 12 months, improving the chances of loan approval and mitigating the financing costs for firms managing the green transition. This easing impact is expected to increase over the next 12 months.

Chart 1
Impact of climate change on credit standards for loans to euro area firms, and driving factors

a) Impact on credit standards for loans to firms

b) Impact of climate-related factors on bank lending conditions for loans to firms

Source: ECB (BLS).
Notes: In panel a), net percentages are defined as the difference between the percentages of banks reporting a tightening of credit standards (blue line) or a tightening impact of climate change (dots) and the percentages of banks reporting an easing or easing impact. The solid line refers to actual values over the past three months, while the dashed part of the line refers to banks’ expectations over the next three months. The dots refer to actual values over the past 12 months, except for the last dot, which refers to banks’ expectations for the next 12 months. Panel b) shows the main factors that contribute, according to the banks, to a net easing (negative values) or tightening (positive values) impact of climate change on bank lending conditions for firms. The climate-related question on firms was introduced in the July 2023 BLS and repeated annually.
The latest observations are for the third quarter of 2025 (past) and the fourth quarter of 2025 (expected) for credit standards, for the second quarter of 2024 – third quarter of 2025 (past), and for the third quarter of 2025 – second quarter of 2026 (expected) for the impact of climate change.

Next to the supply side, the BLS indicates that climate change also has an impact on demand for credit. According to the banks surveyed, climate change fuelled loan demand from green firms and firms in transition, especially for green investment purposes. Meanwhile, banks reported a dampening effect of climate change on loan demand from high-emitting firms (Chart 2, panel a). This could reflect the fact that these firms have not yet started the green transition or made little progress so far. In fact, banks reported that firms’ climate-related loan demand has been primarily driven by fixed investment like machinery, equipment and buildings. Banks also indicated corporate restructuring related to climate change in combination with preferential bank lending rates for green projects or technologies as drivers behind loan demand (Chart 2, panel b).[6] By contrast, high-emitting firms may have delayed green investment in part due to uncertainty about future climate-related regulation. This uncertainty was mentioned by a net 11% of banks as a factor dampening firms’ loan demand. Likewise, firm-specific financing conditions that are comparatively less favourable, and a possible lack of green management practices may have weighed on loan demand.[7] The BLS shows that banks expect these developments to persist over the next 12 months, as uncertainty about future climate regulation could continue to dampen firms’ demand for lending. Meanwhile, financing needs for fixed investment remain high and preferential bank lending rates and fiscal support for green investments could drive loan up demand.

Chart 2
Impact of climate change on demand for loans to euro area firms, and driving factors

a) Impact on loan demand to firms

b) Impact of climate-related factors on loan demand to firms

Source: ECB (BLS).
Notes: In panel a), net percentages are defined as the difference between the percentages of banks reporting an increase in loan demand (blue line) or a positive impact of climate change on loan demand (dots) and the percentages of banks reporting a decrease or negative impact. The solid line refers to actual values in the past three months, while the dashed part of the line refers to banks’ expectations for the next three months. The dots refer to actual values in the past 12 months, except for the last dot, which refers to banks’ expectations for the next 12 months. Panel b) shows the main factors that contribute, according to the banks, to the impact of climate change on bank loan demand. The climate-related question on firms was introduced in the July 2023 BLS and repeated annually. The factor “uncertainty about future climate regulation” was introduced in the July 2025 BLS.
The latest observations are for the third quarter of 2025 (past) and the fourth quarter of 2025 (expected) for demand for loans, for the second quarter of 2024 – third quarter of 2025 (past), and for the third quarter of 2025 – second quarter of 2026 (expected) for the impact of climate change.

Climate risk and bank lending to households for house purchase
Banks also take climate risk into account when lending to households for house purchase. While a high energy performance of buildings has had an easing impact on banks’ credit standards according to the survey results, the opposite has been the case for buildings with low energy performance. These are mainly old buildings which have not undergone any major energy modernisation (Chart 3, panel a).[8] So, for lending to households the same pattern holds true as for firm loans: households investing in houses with better climate performance tend to profit from better credit conditions.
As the BLS results indicate, physical risk of real estate had the largest net tightening impact on bank lending conditions of all the reported climate-related factors over the past 12 months (Chart 3, panel b). In net terms, the tightening impact of the energy performance of buildings (reflecting the transition risk of buildings) was small, as the tightening impact for some buildings was nearly compensated by an easing impact of energy performance for other, more environmentally friendly buildings.
Looking ahead, based on banks’ expectations, the easing impact of energy performance for buildings with high energy performance could outweigh the tightening impact for buildings with low energy performance over the next 12 months. By contrast, the net percentage of banks expecting a tightening impact from physical risk has increased. Overall, better energy performance of buildings could continue to improve lending conditions for housing loans, while physical risk seems to be a concern for a growing share of banks. Also, similarly to firm loans, climate-related fiscal support is expected to continue to have a beneficial impact on bank lending conditions for housing loans.

Chart 3
Impact of climate change on credit standards for housing loans in the euro area, and driving factors

a) Impact on credit standards for housing loans

b) Impact of climate-related factors on bank lending conditions for housing loans

Source: ECB (BLS).
Notes: In panel a), “EP” denotes “energy performance”. Net percentages are defined as the difference between the percentages of banks reporting a tightening of credit standards (blue line) or a tightening impact of climate change (dots) and the percentages of banks reporting an easing or easing impact. The solid line refers to actual values over the past three months, while the dashed part of the line refers to banks’ expectations over the next three months. The dots refer to actual values in the past 12 months, except for the last dot, which refers to banks’ expectations for the next 12 months. Panel b) shows the main factors that contribute, according to the banks, to an easing (negative values) or tightening (positive values) impact of climate change on bank lending conditions. The climate-related question on housing loans was introduced in the July 2025 BLS.
The latest observations are for the third quarter of 2025 (past) and the fourth quarter of 2025 (expected) for credit standards, for the second quarter of 2024 – third quarter of 2025 (past), and for the third quarter of 2025 – second quarter of 2026 (expected) for the impact of climate change.

Climate change also influences household demand for credit. According to the banks surveyed, the investment in the energy performance of buildings has been a key factor driving climate-related housing loan demand. BLS results show an increased loan demand over the past 12 months for buildings with high or medium energy performance, which are mostly new and relatively modern existing buildings (Chart 4, panel a). At the same time, while the European Commission finds that 75% of EU buildings have poor energy performance[9] and therefore require energy modernisation, banks reported that climate change actually weighed on loan demand in this segment. Looking ahead, banks expect a continued dampening impact of climate risks on household loan demand for buildings with low energy performance, suggesting some scepticism about the progress in energy modernisation of old buildings.
Meanwhile, investment in reducing the physical risk of real estate – e.g. making buildings resilient against storms or rising water levels – had only a small positive impact on housing loan demand over the past 12 months, although banks expect this impact to increase somewhat over the next 12 months (Chart 4, panel b). Similarly to business lending, banks consider uncertainty over future climate-related regulation to be a factor dampening housing loan demand. This may have contributed to postponing modernisation investment in existing buildings. Conversely, preferential bank lending rates aimed at enhancing the sustainability of real estate, along with climate-related fiscal support, had a positive impact on housing loan demand over the past 12 months and are expected by banks to continue to contribute positively in the next 12 months.

Chart 4
Impact of climate change on demand for housing loans in the euro area, and driving factors

a) Impact on housing loan demand

b) Impact of climate-related factors on housing loan demand

Source: ECB (BLS).
Notes: In panel a), net percentages are defined as the difference between the percentages of banks reporting an increase in loan demand (blue line) or a positive impact of climate change on loan demand (dots) and the percentages of banks reporting a decrease or negative impact. The solid line refers to actual values in the past three months, while the dashed part of the line refers to banks’ expectations for the next three months. The dots refer to actual values in the past 12 months, except for the last dot, which refers to banks’ expectations for the next 12 months. Panel b) shows the main factors that contribute, according to the banks, to the impact of climate change on bank loan demand. The climate-related question on housing loans was introduced in the July 2025 BLS.
The latest observations are for the third quarter of 2025 (past) and the fourth quarter of 2025 (expected) for demand for loans, for the second quarter of 2024 – third quarter of 2025 (past), and for the third quarter of 2025 – second quarter of 2026 (expected) for the impact of climate change.

Conclusion
The euro area bank lending survey indicates that the climate performance of firms and the energy performance of buildings matter for banks’ lending conditions. Banks have eased credit standards for firms and housing loans for buildings with a better climate performance and have made progress in managing climate-related risks.[10] Climate change also fuels loan demand by firms with better climate performance and those that are making substantial progress in the green transition, and by households for buildings with high and medium energy performance. Meanwhile, greater progress is needed for high-emitting firms and buildings with low energy performance, for which climate-related investment is currently delayed.
The views expressed in each blog entry are those of the authors and do not necessarily represent the views of the European Central Bank and the Eurosystem.
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See the euro area BLS, especially the reports in July 2023, July 2024 and July 2025.
The ECB reports on these developments by aggregating banks’ replies in “net percentages”, which is the difference between the sum of the percentages of banks responding “tightened/decreased considerably” and “tightened/decreased somewhat” and the sum of the percentages of banks responding “eased/increased somewhat” and “eased/increased considerably”. All in all, the exercise gives valuable insights and provides up-to-date information into how banks currently assess their own lending policies and loan demand. The BLS also provides valuable information about expected developments of lending conditions, which is relevant for monetary policy decisions. For detailed account of the method, see User guide to the euro area bank lending survey .
“Green firms” are defined as firms that contribute little or nothing to climate change; “firms in transition” are firms that contribute to climate change but are making relevant progress in the transition; “high-emitting firms” are firms that contribute significantly to climate change and have not yet started the transition or made little progress.
See Nerlich, C. et al. (2025), “Investing in Europe’s green future – Green investment needs, outlook and obstacles for funding the gap”, Occasional Paper Series, No 367, ECB, January; ECB (2022), Good practices for climate related and environmental risk management: Observations from the 2022 thematic review, November; and Altavilla, C., Boucinha, M., Pagano, M. and Polo, A. (2023), “Climate Risk, Bank Lending and Monetary Policy”, Discussion Paper, DP18541, Centre for Economic Policy Research, October.
For the impact of climate risk on collateral value, see ECB (2025), “ECB to adapt collateral framework to address climate-related transition risks”, press release, 29 July.
See also European Investment Bank (2025), Investment Report 2024/2025, Chapter 3 on “Enablers and constraints for firms’ investment”. The report highlights that grants and bank loans with favourable conditions, and targeted policy support more generally, are effective in spurring climate action.
See also Costa, H. et al. (2024), “Making the grass greener: The role of firm’s financial and managerial capacity in paving the way for the green transition”, OECD Economics Department Working Papers, No 1791, OECD Publishing, Paris.
Buildings with “high energy performance” are defined as new buildings or equivalent to new in their energy performance (Energy Performance Certificate A-B). Buildings with “medium energy performance” are defined as buildings with reasonably good energy performance, i.e. modern buildings/existing buildings with major energetic modernisation other than equivalent to new (Energy Performance Certificate C-E). Buildings with “low energy performance” are defined as buildings with poor energy performance, i.e. old buildings without major energetic modernisation (Energy Performance Certificate F-G). If no Energy Performance Certificate (EPC) is available, the bank may use the age of the building and whether a major energetic modernisation has taken place or the actual energy consumption of the building (i.e. the amount of energy consumed, typically measured in kWh) as a proxy. See also the EU Energy Performance of Buildings Directive (EU/2024/1275).
See the European Commission’s website for more information on the Energy Performance of Buildings Directive.
See “Supervisory Priorities for 2025-2027”, ECB, December 2024. See also F. Elderson, “Banks have made good progress in managing climate and nature risks – and must continue”, The Supervision Blog, ECB, 11 July 2025.

 
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The Council and the European Parliament negotiators reached a provisional agreement on measures to incentivise defence-related investments in the current EU budget to implement the so-called ReArm Europe plan, an EU initiative to increase defence spending and strengthen the EU’s military capabilities.
The agreement includes a landmark decision to associate Ukraine to the European Defence Fund, underscoring the EU’s enduring commitment to Ukraine’s security, resilience, and gradual integration into the European defence industrial base.
“The agreement reached today on incentivising defence-related investments in the current EU budget is an important milestone in implementing the ReArm Europe plan and in the EU’s progress towards increasing our defence readiness by 2030. We need to maximise our investments in defence and dual-use technologies to prepare for the future – together in Europe and with Ukraine”, — Troels Lund Poulsen, Minister for Defence of Denmark.
“Today’s agreement sends a strong message: Europe is determined to invest in its security and remove all hurdles in this direction. By opening key EU-programmes to defence-related investments, we are enhancing our efforts in strengthening Europe’s Defence Industrial and Technological Base. It is a necessary step towards a stronger, more resilient, and more capable Europe that is able to defend itself by 2030”, — Marie Bjerre, Minister for European Affairs of Denmark.
The provisional agreement reached today broadly maintains the general thrust of the Commission proposal, which aims to facilitate faster, more flexible and coordinated investments in the European defence technological and industrial base (EDTIB) by amending five EU regulations:
• the Digital Europe Programme
• the European Defence Fund
• the Connecting Europe Facility
• the Strategic Technologies for Europe Platform (STEP), and
• Horizon Europe
The co-legislators agreed to extend EU financial support within Horizon Europe to dual-use and defence-related companies, while largely maintaining the eligibility rules already present in EU instruments such as SAFE (‘Security Action for Europe Instrument’) and EDIP (‘European Defence Programme’).
In addition, co-legislators agreed to associate Ukraine to the European Defence Fund, thus creating new possibilities for Ukrainian entities to join in EU collaborative defence research and development activities in the future.
Next steps
The agreement reached today will have to be confirmed by both institutions before being formally adopted.
Background
The so-called ‘mini-Omnibus for defence’ is a package of legal changes proposed by the European Commission in April 2025 to make it easier for existing EU funds – normally meant for supporting regional development, innovation, industrial support, etc. – to be used also for strengthening the EU’s defence industry.
This initiative is complemented by the so-called defence readiness omnibus package presented in June 2025 by the Commission, which is currently being examined by the Council. Both proposals aim to incentivise defence-related investments and improve Europe’s defence readiness, as requested by the European Council in March 2025.
 
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By Anamaria Piloiu, Oleg Reichmann and Florian Resch
Climate risks affect credit ratings. And these, in turn, influence how banks can use securities as collateral to borrow money. This post takes a closer look at how the Eurosystem integrates climate change risks into its own collateral framework, through the credit risk channel.

Central banks must prepare for the financial risks that come with rising temperatures and fast-evolving green policies. In the Eurosystem, we are actively working to ensure that the euro area’s monetary policy framework keeps pace with the realities of climate change.
One area where these efforts have borne fruit is the incorporation of climate change risks (CCR) into credit ratings. These ratings are central to the Eurosystem’s collateral framework. These rules determine the quantity and type of assets banks can use as collateral when borrowing from the Eurosystem. Banks can only borrow central bank money if they provide assets of adequate credit quality, measured using ratings. If a bank fails to pay back, the Eurosystem can sell these assets to avoid potential losses.
However, if credit ratings fail to properly reflect climate risks, the Eurosystem may end up accepting overvalued, high-risk assets or applying insufficient safeguards. With this in mind, the Eurosystem works both with the external credit assessment institutions (ECAIs) accepted under its credit assessment framework – DBRS Morningstar, Fitch Ratings, Moody’s, Scope Ratings and S&P Global Ratings[1] – and its own in-house credit assessment systems (ICASs). This ensures that both external and internal ratings duly account for all sources of credit risk – including those stemming from the economic consequences of climate change. To this end, the Eurosystem regularly consults with credit rating agencies on how best to take climate change into account. It has also established standards for its ICASs.
Why climate-conscious credit ratings matter at the ECB
Whenever a bank borrows from the Eurosystem, it has to pledge collateral (i.e. the assets that secure the loan). Under the Treaty on the Functioning of the European Union, the Eurosystem can only accept “adequate collateral”. What this means depends largely on an asset’s credit rating. The better the rating, the more a bank can borrow relative to the face value of the asset. For example, an AAA-rated asset carries a lower “haircut” – that is the reduction of its market value acting as a risk cushion for Eurosystem – than one rated BBB. In other words, ratings really do matter.
A lack of sufficient experience and empirical evidence makes it more challenging to incorporate CCR into ratings compared with traditional risks such as financial health, business cycles, competition and innovation. This makes it harder to estimate the extent to which a borrower’s creditworthiness is affected by climate change.
Nonetheless, the ECB’s 2021 climate action plan made the integration of climate risks into all relevant elements of its collateral framework a priority, with a particular focus on credit ratings. The action plan set out a roadmap for making the euro area’s monetary policy framework more resilient to climate risks. This includes improving climate data, incorporating environmental risks into asset valuations and adjusting how the Eurosystem accepts and values collateral. In practical terms, the Eurosystem now requires that climate change be factored into all of the credit ratings used within its collateral framework.
Figure 1

How climate risks are integrated in the collateral framework via the credit risk channel

ICASs: Eurosystem central banks leading by example
All seven Eurosystem ICASs now account for climate change risk in their credit ratings. Managed by the national central banks, these systems mainly rate large and medium-sized businesses. They assess CCR using both quantitative tools and expert judgment. Meanwhile, ICAS analysts evaluate physical risks, such as those from floods and wildfires, and transition risks, such as those linked to carbon pricing and regulation.
Their analysis typically encompasses two stages:
• assessing exposure to climate change risk, using data on emissions, energy use and geographical vulnerability;
• evaluating the impact of these risks on creditworthiness, considering mitigating factors such as insurance, adaptation plans and carbon offsets.
The ICASs use internal carbon stress tests to simulate how transition risks affect company finances. Different jurisdictions apply different pricing scenarios, including the carbon price pathways of the Network for Greening the Financial System (NGFS) and statistical models. These inputs feed directly into the adjusted financial projections of credit issuers – i.e. borrowers’ expected financial performance – and can lead to changes in ratings.
In the case of physical risks, the ICASs use a range of tools to translate environmental hazards (floods, landslides, storms, etc.) into expected financial losses. To ensure consistency and comparability, several ICASs use climate indicators taken from a harmonised dataset developed across the Eurosystem. These indicators help the Eurosystem to better analyse the climate change risks that could affect monetary policy, price stability and the financial system. Crucially, in-house analysts assess not just risks. They also account for the climate opportunities that can enhance creditors’ financial performance, such as the benefits of the energy transition.
How do CCR affect in-house credit scores?
On average, 69% of the credit ratings of the seven ICASs currently include CCR assessments, accounting for 56% of the ICAS-rated collateral mobilised by banks. Some countries are approaching full coverage. This is in line with the ECB’s minimum standards for incorporating climate change risk into ICASs, which have been applicable since the end of 2024.
Across the Eurosystem, the share of ICAS ratings affected by climate risks is currently below 4%, and the adjustments made are typically limited to one rating grade. So climate risks do not have a major overall impact on ratings at present. Transition risks have a more pronounced effect on credit ratings and assessments than physical risks. Here, manufacturing, construction and trade are the most affected sectors. Some ICASs have upgraded ratings thanks to green investments or climate-aligned business strategies. In contrast, physical risks, particularly in the form of acute climate events such as floods, have led to rating downgrades, reflecting the economic damage and cost such events entail. These findings are broadly in line with our observations below on external agencies.
Figure 2

How climate risks are incorporated in ICAS ratings

ECAIs: progress made by external agencies on climate risk integration
As already noted, ICASs are only one side of the coin. The Eurosystem also accepts the credit ratings issued by five External Credit Assessment Institutions (ECAIs): DBRS Morningstar, Fitch Ratings, Moody’s, Scope Ratings and S&P Global Ratings. These agencies have also taken significant steps to integrate CCR into their rating frameworks, reflecting the growing recognition that climate risk also entails financial risk.
Rating agencies now include CCR as part of their analysis of environmental, social and governance (ESG) risks. They generally distinguish between physical risks and transition risks, and apply tailored methodologies and tools to different asset classes and sectors. Moreover, they are now expanding their scenario analyses, developing adaptation metrics and strengthening links between climate data and credit assessments:
• Moody’s uses Issuer Profile Scores and Credit Impact Scores to indicate the relevance of ESG risks. So far, the agency has rated the climate vulnerability of over 12,000 issuers, covering sovereigns, corporates and structured finance.
• Fitch Ratings applies ESG Relevance Scores and has developed Climate.VS – a tool that overlays physical and transition risk data with sector-specific climate vulnerability scores.
• S&P Global Ratings integrates ESG indicators into its sectoral methodologies and conducts forward-looking climate scenario analyses to assess financial resilience under different climate pathways.
• Scope Ratings includes an ESG pillar in its sovereign ratings methodology and is rolling out cross-asset climate stress testing, particularly for financial institutions and corporates.
• DBRS Morningstar incorporates ESG risks via structured checklists and leverages its partnership with Sustainalytics[2] to enhance sector-level analysis, especially for the automotive, energy and insurance sectors.
How do CCR affect external credit ratings?
The impact of climate risks on final credit ratings remains limited. ESG factors influence approximately 13% to 19% of all rating actions across the major agencies, but CCR-specific downgrades account for only 2% to 7%. That said, climate risks now play a greater role in the credit ratings of sovereigns, utilities and the automotive and insurance sectors. These are sectors with high emissions exposures and transition dynamics or direct sensitivity to extreme weather events.
The challenges ahead: from risk recognition to risk integration
Despite the notable progress made by both ICASs and ECAIs, several persistent challenges still limit the full and consistent integration of CCR into credit ratings.
While climate risks are widely recognised, they rarely lead to rating changes. There are several reasons for this:
• strong financials or diversification strategies can mask the vulnerabilities of some debtors;
• risk mitigation strategies (e.g. insurance or carbon offsets) can reduce their perceived exposure;
• rating horizons remain short and medium term, whereas climate risks tend to be long term.
Furthermore, reliable, granular climate change-related data remain scarce, particularly for smaller issuers, sovereigns and structured finance. Public disclosures vary, and asset-level exposure data (e.g. on property flood risk) are often unavailable.
Another challenge increasingly recognised as a financial risk is nature degradation and biodiversity loss. The major credit rating agencies seek to capture this through the environmental pillar of their ESG frameworks. Here, impacts such as deforestation, habitat loss and resource depletion can influence sector and issuer assessments, particularly in agriculture, forestry, fisheries and the extractive industries. Within the Eurosystem, the ICASs also consider these risks when they are deemed credit relevant.
By incorporating these aspects, the ECAIs and ICASs are expanding their coverage of credit-relevant sustainability risks further, thereby helping to ensure that credit ratings reflect a broader range of environmental challenges. However, modelling and data limitations remain more acute in this area.
Keeping climate disclosures on track
The regulatory landscape is constantly evolving, with both progress and potential setbacks. The ECB has pushed for further integration of CCR in banks’ internal models and has welcomed the EBA’s guidelines on ESG risk management. Climate stress testing and supervisory engagement help banks, ECAIs and ICASs to refine their methodologies and expand their climate coverage.
To ensure the continued availability of high-quality climate-related data, the ECB has underlined the importance of maintaining strong disclosure obligations under the Corporate Sustainability Reporting Directive (CSRD). The CSRD is the EU’s main sustainability framework and requires that companies publish detailed information on their environmental and climate impacts, as well as on their own exposure to climate and nature risks. This information is essential if credit rating agencies, banks and the Eurosystem are to properly integrate climate-related risks into their credit assessments and collateral management. In the context of the draft “Omnibus” package proposed by the European Commission, the ECB has stressed that these amendments must strike the right balance between retaining the benefits of sustainability reporting for the European economy and the financial system and ensuring that the requirements remain proportionate.
What comes next?
The Eurosystem’s work on embedding climate risk into credit ratings is not just about making technical adjustments; it also strengthens monetary policy implementation and ensures that the collateral framework is fit for a climate-affected future.
We will continue working closely with ICASs, credit rating agencies, financial institutions and EU lawmakers to refine methodologies, close data gaps and promote credible, science-based financial assessments. By acting now, we can help safeguard financial stability and curb the buildup of unpriced climate risk.
The views expressed in each blog entry are those of the author(s) and do not necessarily represent the views of the European Central Bank and the Eurosystem.
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 The Eurosystem currently accepts five credit rating agencies in its credit assessment framework (ECAF). See this blog post.
Sustainalytics is a firm that rates how companies manage ESG risks and opportunities.

 
Compliments of the European Central BankThe post ECB | Credit Ratings: How the ECB strives to properly account for climate risks first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.