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Contribution Details

Type Journal Article
Scope Discipline-based scholarship
Title A Climate stress-test of the financial system
Organization Unit
  • Stefano Battiston
  • Antoine Mandel
  • Irene Monasterolo
  • Franziska Schuetze
  • Gabriele Visentin
Item Subtype Original Work
Refereed Yes
Status Published in final form
  • English
Journal Title Nature Climate Change
Publisher Nature Publishing Group
Geographical Reach international
ISSN 1758-678X
Volume 7
Page Range 283 - 288
Date 2017
Abstract Text The urgency of estimating the impact of climate risks on the financial system is increasingly recognized among scholars and practitioners. By adopting a network approach to financial dependencies, we look at how climate policy risk might propagate through the financial system. We develop a network-based climate stress-test methodology and apply it to large Euro Area banks in a ‘green’ and a ‘brown’ scenario. We find that direct and indirect exposures to climate-policy-relevant sectors represent a large portion of investors’ equity portfolios, especially for investment and pension funds. Additionally, the portion of banks’ loan portfolios exposed to these sectors is comparable to banks’ capital. Our results suggest that climate policy timing matters. An early and stable policy framework would allow for smooth asset value adjustments and lead to potential net winners and losers. In contrast, a late and abrupt policy framework could have adverse systemic consequences.
Related URLs
Digital Object Identifier 10.1038/nclimate3255
Other Identification Number merlin-id:14735
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