ECB Economy-wide Climate Stress Test PDF Download
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Author: Spyros Alogoskoufis
Publisher:
ISBN: 9789289948357
Category : Climatic changes
Languages : en
Pages : 89
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Book Description
This paper describes the ECB's economy-wide climate stress test, which has been developed to assess the resilience of non-financial corporates (NFCs) and euro area banks to climate risks, under various assumptions in terms of future climate policies. The stress test comprises three main pillars: (i) climat-specific scenarios to project climate and macroeconomic conditions over the next 30 years; (ii) a comprehensive dataset that combines climate and financial information for millions of companies worldwide and approximately 1,600 consolidate euro area banks; (iii) a novel set of climate-specific models to capture the direct and indirect transmission channels of climate risk drivers for firms and banks. The results show that there are clear benefits to acting early: the short-term costs of the transition pale in comparison to the costs of unfettered climate change in the medium to long term.
Author: Spyros Alogoskoufis
Publisher:
ISBN: 9789289948357
Category : Climatic changes
Languages : en
Pages : 89
Get Book Here
Book Description
This paper describes the ECB's economy-wide climate stress test, which has been developed to assess the resilience of non-financial corporates (NFCs) and euro area banks to climate risks, under various assumptions in terms of future climate policies. The stress test comprises three main pillars: (i) climat-specific scenarios to project climate and macroeconomic conditions over the next 30 years; (ii) a comprehensive dataset that combines climate and financial information for millions of companies worldwide and approximately 1,600 consolidate euro area banks; (iii) a novel set of climate-specific models to capture the direct and indirect transmission channels of climate risk drivers for firms and banks. The results show that there are clear benefits to acting early: the short-term costs of the transition pale in comparison to the costs of unfettered climate change in the medium to long term.
Author: Tina Emambakhsh
Publisher:
ISBN: 9789289961578
Category :
Languages : en
Pages : 0
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Book Description
The transition to a carbon-neutral economy is necessary to limit the negative impact of climate change and has become one of the world's most urgent priorities. This paper assesses the impact of three potential transition pathways, differing in the timing and level of ambition of emission reductions, and quantifies the associated investment needs, economic costs and financial risks for corporates, households and financial institutions in the euro area. Building on the first ECB top-down, economy-wide climate stress test, this paper contributes to the field of climate stress testing by introducing three key innovations. First, the design of three short-term transition scenarios that combine the transition paths developed by the Network for Greening the Financial System (NGFS) with macroeconomic projections that account for the latest energy-related developments. Second, the introduction of granular sectoral dynamics and energy-specific considerations by country relevant to transition risk. Finally, this paper provides a comprehensive analysis of the impact of transition risk on the euro area private sector and on the financial system, using a granular dataset that combines climate, energy-related and financial information for millions of firms within the euro area credit register and securities database, and country-level data on households. By comparing different transition scenarios, the results of the exercise show that acting immediately and decisively would provide significant benefits for the euro area economy and financial system, not only by maintaining the optimal net-zero emissions path (and therefore limiting the physical impact of climate change), but also by limiting financial risk. An accelerated transition to a carbon-neutral economy would be helpful to contain risks for financial institutions and would not generate financial stability concerns for the euro area, provided that firms and households could finance their green investments in an orderly manner. However, the heterogeneous results across economic sectors and banks suggest that more careful monitoring of certain entities and subsets of credit exposures will be required during the transition process.
Author: Haris Doukas
Publisher: Springer
ISBN: 3030031527
Category : Business & Economics
Languages : en
Pages : 271
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Book Description
This open access book analyzes and seeks to consolidate the use of robust quantitative tools and qualitative methods for the design and assessment of energy and climate policies. In particular, it examines energy and climate policy performance and associated risks, as well as public acceptance and portfolio analysis in climate policy, and presents methods for evaluating the costs and benefits of flexible policy implementation as well as new framings for business and market actors. In turn, it discusses the development of alternative policy pathways and the identification of optimal switching points, drawing on concrete examples to do so. Lastly, it discusses climate change mitigation policies’ implications for the agricultural, food, building, transportation, service and manufacturing sectors.
Author:
Publisher:
ISBN: 9789289954600
Category :
Languages : en
Pages : 0
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Book Description
Climate stress testing exercises have emerged as a key tool for supervisors to assess the impact of climate-related risks on the banking system. Banks themselves are also making more and more use of climate stress testing exercises to inform required disclosures and strategic choices in the context of their climate-related risk management. The 2022 ECB climate stress test (CST) was a unique exercise in terms of its exploratory nature and learning character. The exercise acted as a catalyst for banks to start or continue working on all aspects of prudent climate stress testing. While banks have made some progress on incorporating climate-related risks into their stress testing frameworks and have delivered comprehensive and innovative information despite the prevailing challenges, the results also show that we are at the start of a long journey. There is a high level of inconsistency across banks' practices, and several areas of climate stress testing have been identified where there is need for improvement. The objective of this report is to provide banks with examples and suggestions on how to improve their climate stress testing capabilities based on identified good practices from the 2022 ECB CST and to support banks in their transitional journey. This report aims to facilitate banks' efforts to align their practices with the supervisory expectations set out in the ECB Guide on climate-related and environmental risks ("the Guide"). In particular, this report offers banks support in addressing Expectation 11 of the Guide, which focuses on the necessity to adequately incorporate climate and environmental risks in banks' stress testing frameworks. The report on good practices for climate-related and environmental risk management from the 2022 thematic review on the other hand addresses the rest of the supervisory expectations outlined in the Guide.The good practices outlined in this report should also help banks and supervisors to prepare for future CST exercises.
Author: Mr.Tobias Adrian
Publisher: International Monetary Fund
ISBN: 1513520741
Category : Business & Economics
Languages : en
Pages : 73
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Book Description
This paper explains specifics of stress testing at the IMF. After a brief section on the evolution of stress tests at the IMF, the paper presents the key steps of an IMF staff stress test. They are followed by a discussion on how IMF staff uses stress tests results for policy advice. The paper concludes by identifying remaining challenges to make stress tests more useful for the monitoring of financial stability and an overview of IMF staff work program in that direction. Stress tests help assess the resilience of financial systems in IMF member countries and underpin policy advice to preserve or restore financial stability. This assessment and advice are mainly provided through the Financial Sector Assessment Program (FSAP). IMF staff also provide technical assistance in stress testing to many its member countries. An IMF macroprudential stress test is a methodology to assess financial vulnerabilities that can trigger systemic risk and the need of systemwide mitigating measures. The definition of systemic risk as used by the IMF is relevant to understanding the role of its stress tests as tools for financial surveillance and the IMF’s current work program. IMF stress tests primarily apply to depository intermediaries, and, systemically important banks.
Author: Leonardo Martinez-Diaz
Publisher: U.S. Commodity Futures Trading Commission
ISBN: 057874841X
Category : Science
Languages : en
Pages : 196
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Book Description
This publication serves as a roadmap for exploring and managing climate risk in the U.S. financial system. It is the first major climate publication by a U.S. financial regulator. The central message is that U.S. financial regulators must recognize that climate change poses serious emerging risks to the U.S. financial system, and they should move urgently and decisively to measure, understand, and address these risks. Achieving this goal calls for strengthening regulators’ capabilities, expertise, and data and tools to better monitor, analyze, and quantify climate risks. It calls for working closely with the private sector to ensure that financial institutions and market participants do the same. And it calls for policy and regulatory choices that are flexible, open-ended, and adaptable to new information about climate change and its risks, based on close and iterative dialogue with the private sector. At the same time, the financial community should not simply be reactive—it should provide solutions. Regulators should recognize that the financial system can itself be a catalyst for investments that accelerate economic resilience and the transition to a net-zero emissions economy. Financial innovations, in the form of new financial products, services, and technologies, can help the U.S. economy better manage climate risk and help channel more capital into technologies essential for the transition. https://doi.org/10.5281/zenodo.5247742
Author: Stephane Hallegatte
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 49
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Book Description
Bank stress tests of climate change risks are relatively new, but are rapidly proliferating. The IMF and World Bank staff collaborated to develop an experimental macro scenario stress testing approach to examine physical risks for banks by building a dynamic stochastic general equilibrium model linked to global climate and a catastrophe risk model specifically for the Philippines. Our model shows that the impact of extremely rare typhoons on GDP could already be systemic and worsen substantially with climate change. However, bank capital declines only modestly unless the event is compounded with other disasters, partly thanks to the strength of Philippines’ banks and economy before the COVID crisis. However, more work is needed before drawing strong conclusions about the relevance of climate risk, as the model focused only on typhoons’ physical capital destructions and their macroeconomic-level transmissions to banks.
Author: Mr. Dimitri G Demekas
Publisher: International Monetary Fund
ISBN: 1616356529
Category : Business & Economics
Languages : en
Pages : 45
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Book Description
There are demands on central banks and financial regulators to take on new responsibilities for supporting the transition to a low-carbon economy. Regulators can indeed facilitate the reorientation of financial flows necessary for the transition. But their powers should not be overestimated. Their diagnostic and policy toolkits are still in their infancy. They cannot (and should not) expand their mandate unilaterally. Taking on these new responsibilities can also have potential pitfalls and unintended consequences. Ultimately, financial regulators cannot deliver a low-carbon economy by themselves and should not risk being caught again in the role of ‘the only game in town.’
Author: René Smits
Publisher: Edward Elgar Publishing
ISBN: 1800377282
Category : Law
Languages : en
Pages : 425
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Book Description
Sustainable Finance and Climate Change explores the legal and regulatory framework that governs the transition to a carbon free economy, looking in particular at the regulation of the financial sector and corporate liability for climate change and biodiversity loss. In addition it looks at the effect on general corporate law, environmental law, central bank law, as well as litigation and arbitration.
Author: Signe Krogstrup
Publisher: International Monetary Fund
ISBN: 1513511955
Category : Business & Economics
Languages : en
Pages : 58
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Book Description
Climate change is one of the greatest challenges of this century. Mitigation requires a large-scale transition to a low-carbon economy. This paper provides an overview of the rapidly growing literature on the role of macroeconomic and financial policy tools in enabling this transition. The literature provides a menu of policy tools for mitigation. A key conclusion is that fiscal tools are first in line and central, but can and may need to be complemented by financial and monetary policy instruments. Some tools and policies raise unanswered questions about policy tool assignment and mandates, which we describe. The literature is scarce, however, on the most effective policy mix and the role of mitigation tools and goals in the overall policy framework.
