• The ECB is currently conducting a policy review covering all aspects of monetary policy and climate changes risks are being looked at.
• The topic of climate change and how it poses risks to financial stability may be new, bit it's gathering pace.

LONDON — Climate change is already impacting price stability and it will have an effect on monetary policy, European Central Bank President Christine Lagarde said Friday.

Speaking remotely during the State of the Union conference, Lagarde said: "(It) is pretty obvious, climate change will have — has already — an impact on price stability, whether you look at climate related events, whether you look at particularly exposed areas, prices will be determined as a result of that."

The ECB is currently conducting a policy review covering all aspects of monetary policy and climate change risks are being included in that report. The bank's current mandate is just to ensure price stability in the 19-member area that is the euro zone.

"The monetary policy space that is available will also be determined partly, not exclusively, but partly on climate change," Lagarde, an advocate of more sustainable practices, said.

In addition, the supervisory arm of the central bank is also examining whether lenders in the region are managing their climate-related risks.

"Although corporate asset purchases represent only a very small part of the overall portfolio of our monetary policy instruments, it is a part that is significant and where we have to ask ourselves: are we pricing risks properly, are we applying the right haircuts as a result, are we looking at disclosures that will be coming about soon, are we assessing the transition path and the financing needs that there will be, so I think that that will have an impact on the instruments that we use in the future and in the volume of each of those instruments as well," Lagarde said.

The topic of climate change and how it poses risks to financial stability may be new, bit it's gathering pace.

Speaking to CNBC in April, Kristalina Georgieva, the managing director of the International Monetary Fund, said: "When a country is hit by a natural disaster — and these disasters are becoming more frequent and more severe — then property is affected, production capacity of agriculture, of industry is affected, even the very financial institutions may be affected."

Natural disasters could bring problems for mortgage owners and reduce the income that banks receive on a regular basis, ultimately leading to problems in the banking sector.

There are concerns about how a transition into a low-carbon economy might impact financial markets too.

"When we move from high to low carbon intensity, industries that are in that area of high intensity become less valuable, asset valuation changes and this shift, if it is abrupt, can be quite difficult for financial institutions," Georgieva said at the time.