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Sante Carbone

20 November 2019
Financial Stability Review Issue 2, 2019
Scarce and inconsistent information on the climate-related risk embedded in assets makes the pricing of climate risk difficult for investors and authorities.Recent studies have found that environmental disclosures can affect the market valuation of non-financial businesses operating in sectors that are sensitive to the risks related to the transition to a low-carbon economy. But the impact is less clear for financial institutions. This box investigates climate-related disclosures of large euro area banks and insurers and their impact on stock market valuations.
17 May 2021
Financial Stability Review Issue 1, 2021
The ECB has been intensifying its quantitative work aimed at capturing climate-related risks to financial stability. This includes estimating financial system exposures to climate-related risks, upgrading banking sector scenario analysis and monitoring developments in the financing of the green transition. Considerable progress has been made on capturing banking sector exposures to firms that are subject to physical risks from climate change. While data and methodological challenges are still a focus of ongoing debates, our analyses suggest (i) somewhat concentrated bank exposures to physical and transition risk drivers, (ii) a prevalence of exposures amongst more vulnerable banks and in specific regions, (iii) risk-mitigating potential for interactions across financial institutions, and (iv) strong inter-temporal dependency conditioning the interaction of transition and physical risks. At the same time, investor interest in “green finance” continues to grow – but so-called greenwashing concerns need to be addressed to foster efficient market mechanisms. Both the assessment of risks and the allocation of finance to support the orderly transition to a more sustainable economy can benefit from enhanced disclosures, including of firms’ forward-looking emission targets, better data and strengthened risk assessment methodologies, among other things.
JEL Code
G10 : Financial Economics→General Financial Markets→General
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