- 29 May 2019
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 1, 2019Details
- This special feature discusses the channels through which climate change can affect financial stability and illustrates the exposure of euro area financial institutions to risks from climate change with the help of granular data. Notwithstanding currently limited data availability, the analysis shows that climate change-related risks have the potential to become systemic for the euro area, in particular if markets are not pricing the risks correctly. A deeper understanding of the relevance of climate change-related risks for the euro area financial system at large is therefore needed. Better data availability and comparability and the development of a forward-looking framework for risk assessments are important aspects of this work going forward.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G20 : Financial Economics→Financial Institutions and Services→General
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
- 26 May 2020
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2020Details
- As awareness of the environmental, social and economic risks from disorderly climate change has grown, so has awareness of the need for businesses to accelerate their decarbonisation. Banks need to be prepared for changes in loan performance should financial losses result from abrupt shifts in policies, technologies or consumer sentiment in response to the risks posed by climate change. While credit ratings could in principle capture such risks, in practice rating agencies have only just begun incorporating risks arising from an abrupt transition to a low-carbon economy.
- 24 November 2020
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2020Details
- Green financial markets are growing rapidly. Funds with an environmental, social and corporate governance mandate have grown by 170% since 2015 and 57% of them are domiciled in the euro area. The outstanding amount of green bonds issued by euro area residents has grown ten-fold over the same period. The large flows into ESG funds and green assets are expected to be sustained over time by increasing concerns around climate change, a gradual generational transfer of wealth towards millennials, and better disclosure and understanding of ESG risks. Given the financial stability risks from climate change, this box aims to understand the performance of such products and their potential for greening the economy. It focuses on the resilience of ESG funds and the absence of a consistent “greenium” – a lower yield for green bonds compared with conventional bonds of similar risk profile – reflecting the fact that green projects do not enjoy benefit from cheaper financing.
- JEL Code
- G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
Q56 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Environment and Development, Environment and Trade, Sustainability, Environmental Accounts and Accounting, Environmental Equity, Population Growth