Lagarde Urges Global Climate Action Ahead of COP31 As Europe Faces Rising Economic Risks
In an article published ahead of COP31, which is scheduled to begin next week in the Mediterranean city of Antalya, Lagarde warned that the growing economic and financial consequences of climate change make early action essential to protecting Europe's economy and communities.
"The COP31 summit in Antalya, which begins next week, is an opportunity to turn ambition into action on a global scale," Lagarde wrote.
"This summer will not be the last of its kind; extreme heat will return more often and with greater force, and its costs will fall hardest on those least able to bear them," she added.
Lagarde pointed out that Europe is experiencing warming at approximately twice the global average rate. She described the summer's record-breaking heat waves, droughts and wildfires as a major human and environmental tragedy that resulted in more than 30,000 additional deaths.
The scale of the damage was evident across several European countries. Wildfires destroyed or affected approximately 400,000 hectares in Spain and France, while exceptionally low water levels in the Rhine and Danube disrupted important commercial shipping routes and limited the cooling capacity of nuclear power stations.
Although the European Central Bank assessed that the immediate effects on euro area gross domestic product were temporary, Lagarde cautioned that short-term economic indicators do not fully capture the longer-lasting consequences of climate-related disasters.
She highlighted the dependence of European businesses on natural resources, noting that nearly three-quarters of companies across the euro area rely heavily on nature. Water-related services, in particular, face significant exposure to environmental disruption.
The economic consequences of extreme weather can persist well beyond the initial event. According to Lagarde, economic activity in affected areas declines by an average of 1.5% two years after a heat wave and by 3% four years after a drought. These losses are linked to reduced productivity and the relocation of workers.
Agriculture is also facing growing pressure as increasingly dry conditions undermine production prospects across Europe. Lagarde warned that weaker agricultural output could contribute to higher food inflation over the coming year.
Flooding presents another major financial risk. She said that almost 12% of economic output across the euro area is exposed to inadequate flood protection. Insurance coverage also remains limited, with only around one-quarter of historical catastrophe-related losses in Europe having been covered by insurance.
Lagarde further drew attention to the connection between energy market pressures and extreme weather. She explained that the energy shock associated with the conflict in the Middle East coincided with summer heat waves, increasing demand for electricity used in cooling systems. At the same time, low river levels restricted hydropower production and reduced the capacity of nuclear power stations.
To strengthen Europe's ability to withstand future climate and energy shocks, Lagarde identified three priorities for policymakers.
The first involves creating an EU-wide public-private reinsurance mechanism to improve financial protection against climate-related disasters. The second focuses on modernizing electricity networks while expanding energy storage capacity. The third is to enable businesses to generate and consume their own energy through decentralized systems.
She emphasized that investment in electricity infrastructure could produce substantial savings by reducing wider system costs and improving the integration of renewable energy.
"Each euro invested in upgrading the grid saves more than €2 ($2.24) in other system costs, and storage would help carry cheap solar power into the evenings, when heat waves strain supply most," Lagarde said.
Concluding her assessment, the ECB president called for the completion of the EU's savings and investments union, arguing that it would help mobilize the private capital needed to finance the continent's transition toward a greener economy.
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