Quotation Battiston, Stefano, Mandel, Antoine , Monasterolo, Irene, Schuetze, Franziska, Visentin, Gabriele. 2017. A climate stress test of the financial system. Nature Climate Change 7, 283 -288.


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Abstract

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.

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Publication's profile

Status of publication Published
Affiliation External
Type of publication Journal article
Journal Nature Climate Change
Citation Index SSCI
Language English
Title A climate stress test of the financial system
Volume 7
Year 2017
Page from 283
Page to 288
Reviewed? Y
URL https://www.nature.com/nclimate/journal/v7/n4/full/nclimate3255.html
DOI http://dx.doi.org/10.1038/nclimate3255

Associations

People
Monasterolo, Irene (Details)
External
Battiston, Stefano (University of Zurich, Switzerland)
Mandel, Antoine (Paris School of Economics, France)
Schuetze, Franziska (Global Climate Fund, Germany)
Visentin, Gabriele (University of Zurich, Switzerland)
Organization
Institute for Ecological Economics IN (Details)
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