Climate change and the loss of natural habitats and biodiversity, as well as the transition to a net zero economy, continue to pose key challenges to the stability of the economy and financial system. Fossil fuel dependency has an increasingly adverse economic impact. However, amidst geopolitical tensions and economic uncertainty, climate and nature protection have recently been “put on the back burner” in many countries and institutions. The concentration of greenhouse gases in the atmosphere is rising continuously, making it increasingly unlikely that global warming will be limited to 1.5 degrees Celsius – the main objective of the Paris Agreement (see Figure 2 1 ). This shows the urgency of reducing greenhouse gas emissions in order to achieve national and international climate targets. These global developments directly affect the Bundesbank’s core business areas. 

On the one hand, the concentration of greenhouse gases results in “acute” and “chronic” physical climate risks, such as floods, droughts and long term increases in temperature and sea levels. These risks will continue to increase as the concentration of greenhouse gases rises. On the other hand, climate policy measures to achieve a net zero economy, technological innovation and changes in consumer behaviour can lead to what are known as transition risks or opportunities. 2 It has recently become clear just how dependent on fossil fuels the German and European economies have become and what economic uncertainties and risks this entails. The extent to which transition risks and opportunities arise depends on various factors, some of which are political. It is therefore often hard to quantify. Figure 3 shows that physical and transition risks can have economic implications. At the micro level, these could include, for instance, the destruction of assets or productivity losses on the part of firms. 3 In addition, the solvency and collateral value of (public or private) borrowers could be adversely affected. At the macro level, public revenue and fiscal space 4  can be impaired, as can price stability and the transmission of monetary policy, 5 spilling over to other core business areas of the Bundesbank. Via these economic transmission channels, physical and transition climate-related risks affect the financial system as drivers of existing financial risks. The Focus Chapter in Section 1.2 looks at the extent to which climate-related risks and the long-term sustainability of fossil fuel-based business models are putting the stability of the German financial system at risk. 

In this challenging context, the Bundesbank remains committed to analysing the impacts of climate change and nature and biodiversity degradation on the economic and financial system and to addressing the implications for its own balance sheet by taking the appropriate risk management measures. In 2021, the Eurosystem central banks agreed on a common framework to make non-monetary policy portfolios more sustainable and increase transparency on their own climate performance. 6 In subsequent years, the Eurosystem adopted further measures to integrate climate-related risks more closely into monetary policy operations within its mandate and to take them into consideration in the future design of the operational framework for implementing monetary policy. 7 As part of the 2025 strategy assessment, the ECB’s Governing Council committed to taking into account, within the monetary policy mandate and general activities, the implications of climate change and the loss of nature and biodiversity for monetary policy and central banking. 8  

With this fifth annual report, which is part of the Eurosystem-wide climate-related disclosures, the Bundesbank wishes to underscore once more the importance of the climate-related risk management of financial assets as well as transparency and disclosure. In times when short-term risks are the prime focus, it is all the more important not to lose sight of long-term developments and to set the course for a sustainable future – not only in view of the Federal Climate Action Act (Klimaschutzgesetz), but also to safeguard economic and financial stability.

The Bundesbank has been comprehensively addressing climate change and the impact on its mandate and business areas for several years. It began with a particular focus on climate-related risks and has increasingly extended it to include nature-related risks. In addition, the Bundesbank advocates for a more sustainable economic and financial system. Figure 4 provides an overview of the key milestones of recent years. 

National and international cooperation with a broad range of stakeholders to gain a better understanding of the economic and financial risks arising from climate change and climate policy remained an important aspect of the Bundesbank’s climate-related work in 2025. At the national level, the Bundesbank has been an observer on the Standing Committee of the Sustainable Finance Cluster (SFC) since April 2018. This body is a central point of contact for questions relating to sustainable finance in Germany. It thus contributes to the standing dialogue with key financial players on sustainability issues and, in particular, the impact of climate change and nature and biodiversity degradation on the financial system. For example, in October 2025, the Bundesbank, together with the SFC, organised a talk on sustainable finance for its clients in the public sector asset management sector. 9 Topics included developments in the area of sustainable finance, the regulatory framework and public investors’ practical experience with the issue of sustainability. In addition, in December 2025, the Bundesbank hosted the quarterly meeting of the Standing Committee of the SFC.

In the global context, the Bundesbank has a key influence on the activities of the NGFS.  Bundesbank First Deputy Governor Dr Sabine Mauderer will continue in her role as Chair of the Network until June 2026. In addition, various Bundesbank core services and functions actively contribute to the work of several NGFS working groups, such as on the macroeconomic impact of climate action or by co-chairing the Expert Network on Data. The key NGFS publications in 2025 included innovative short-term climate scenarios examining the direct effects of climate change and climate policy on the economy and the financial system 10 and also, for the first time, an input paper for the G20. 11 This paper presents a practice-oriented framework for anchoring climate adaptation into transition planning and guidelines for developing adaptation goals and metrics. 

Together with the BMF, the Bundesbank also represents Germany in the G20 Sustainable Finance Working Group (SFWG). One of the issues the SFWG explored in 2025 was how firms could integrate investment to adapt to climate change into their transition plans and how to improve data standardisation in global trade in carbon offset certificates. The Bundesbank and the BMF are likewise both members of the OECD’s Sustainable Finance Working Party (SFWP), established in 2025. The SFWP brings together central banks, supervisory authorities and finance ministries from 39 jurisdictions to facilitate efficient, open and sound financial markets that also take sustainability aspects into account. In addition, the Bundesbank promotes knowledge transfer, including in the Eurosystem, the NGFS and the G7, for example by exchanging best practices in modelling climate-related risks and by publishing its own analytical tools and thus making them available to interested users. 12

Risks from nature and biodiversity loss are a growing area of interest. In the 2025 monetary policy strategy assessment, the ECB’s Governing Council committed to fully taking into account, within its mandate, the implications of climate change and nature degradation for monetary policy and central banking. 13 For the first time, a Bundesbank study has shown that banks in Germany are highly dependent on ecosystem services through their lending to enterprises. 14 Ecosystem services provide inputs for economic activities. If these are no longer available, or their availability is limited, due to nature and biodiversity degradation, the supply of goods and services from various economic sectors may be at risk. These risks can spill over to banks by loans to affected enterprises. In addition, the Bundesbank conducts internal analyses to examine the extent to which its own financial assets are exposed to nature-related risks.

Climate-related risks remain an area of interest for financial and banking supervision. Physical climate-related risks such as extreme weather events are becoming increasingly important. 15 The Bundesbank is involved in implementing the prudential regulation created by the so-called “EU banking package” and addressing sustainability risks. This includes assisting the European Banking Authority (EBA) in the preparation of guidelines and technical standards on environmental, social and governance (ESG) risks, including risk management, scenario analysis, stress testing and disclosure. In the area of financial stability, too, the Bundesbank is continuously investigating potential vulnerabilities that can arise in the financial system as a result of climate-related risks (see also Focus chapter).

At the same time, the Bundesbank’s analyses show that the banking sector is, in principle, well placed to finance the transition to a net zero economy. In a comprehensive analysis, the Bundesbank examines the investment and financing required to transition to a net zero economy in Germany by 2045 and the role of the German banking system in providing the necessary funds. 16 The results show that banks’ capital adequacy is sufficient to provide the additional investment, even under conservative assumptions. At the same time, however, it is clear that structural barriers and a lack of incentives have, up until now, dampened the willingness to invest in decarbonisation measures in key sectors. This is also suggested by the results of Bundesbank surveys. The study thus provides valuable impetus for the current debate and for the design of an effective framework for financing the transition.

On behalf of the European System of Central Banks (ESCB), the Bundesbank once again successfully procured climate and other sustainability data and concluded contracts with two data providers. It thus continues to safeguarding the common dataset of the national central banks in the ESCB in this area. This is an important prerequisite for comparable climate metrics in portfolio management and reporting (see Chapter 5) as well as for the implementation of the monetary policy use cases decided by the ECB Governing Council. 17

The Bundesbank uses innovative technologies to tap new data sources in the field of sustainable finance. For example, in cooperation with the Ludwig Maximilians University of Munich, the Greenhouse Gas Insights and Sustainability Tracking (GIST) project uses artificial intelligence (GenAI) to extract sustainability information from unstructured public sources, such as sustainability and annual reports, and to make it usable for central bank and statistical purposes. A key objective is to improve the transparency and consistency of greenhouse gas emissions data reported by companies and, in some cases, provided by commercial vendors, and of other environmental metrics. The Bundesbank is thus making an important contribution to enhancing the data basis for research and analysis and to accessing new data sources and methods in statistics.