Sustainable Finance, Prudential Regulation, and the Role of the ECB

This article examines how climate-related and environmental risks are being integrated into EU monetary and prudential frameworks, with a focus on the European Central Bank (ECB). It argues that such risks act as drivers of traditional prudential risk categories and can also affect price stability through supply shocks and the monetary-policy transmission mechanism. The article analyzes the Treaty basis for ECB action, the separation of monetary policy and supervision within the Single Supervisory Mechanism, and recent EU reforms embedding ESG risks into banking law, complemented by EBA soft law.