EU sets course for a more climate-resilient economy

Europe is already experiencing heavy losses from heat, drought, floods and wildfires, and these risks are set to grow. A new EU-level scientific report calls for a much stronger and more coherent adaptation policy framework. It proposes common climate scenarios, clear resilience targets and better use of public and private finance. This will directly influence how banks, insurers and investors across Europe, including in the Netherlands, assess and manage physical climate risks.

Climate risks in Europe are rising fast

The report shows that Europe has warmed about twice as fast as the global average in recent decades, with regional temperatures around 2.4 °C above pre-industrial levels. This has led to more frequent and intense heatwaves, droughts, wildfires and floods, and growing economic losses to infrastructure, housing and agriculture. Annual reported damages to physical assets in Europe have increased roughly five-fold since the 1980s. Without stronger adaptation, many of the 36 major climate risks identified for Europe are expected to reach critical levels by mid-century, threatening health, ecosystems, public finances and the functioning of the single market.

A common climate reference and resilience-by-design

To move beyond fragmented and reactive responses, the report recommends that the EU adopt a common climate reference scenario for adaptation planning, based on an emissions pathway that leads to about 2.8–3.3 °C of global warming by 2100. Because Europe warms faster than the global average, this implies even higher regional warming and more severe local hazards. More adverse pathways should be used for stress tests. The authors call for mandatory and harmonised climate risk assessments across EU policies, using shared scenarios and methods, and for a clear vision of a climate-resilient EU by 2050 with measurable adaptation targets. A “climate resilience by design” principle should guide all EU policies, programmes and investment decisions.

Implications for finance, insurance and investment

The report underlines that climate impacts can weaken growth, strain public budgets and increase debt burdens, with knock-on effects for the financial system. It recommends fully integrating physical climate risk into corporate reporting, disclosure and financial supervision, and strengthening tools such as scenario analysis and stress testing. The EU’s economic governance and long-term budget should embed climate risk management and prioritise investment that increases resilience, supported by better expenditure tracking and technical assistance. The report also highlights a widening climate insurance protection gap, with only a minority of climate-related losses insured, and suggests exploring EU-level risk-pooling or reinsurance mechanisms, as well as insurance product standards that reward risk reduction and adaptation.