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Measuring the Climate Risk Exposure of Financial Assets - Methodological Challenges and Central Bank Practices

Author

Listed:
  • Pal Peter Kolozsi

    (Magyar Nemzeti Bank)

  • Sandor Ladanyi

    (Magyar Nemzeti Bank)

  • Andras Straubinger

    (Magyar Nemzeti Bank)

Abstract

In order to understand climate-related risks and opportunities, the availability and transparency of reliable financial information is essential. In this regard, the financial sector plays a special role owing to its ties to other economic sectors, and the exposure of financial institutions highlights the responsibility of central banks. This paper uses the literature related to environmental sustainability reporting as well as practical experience to describe the challenges encountered in assessing the green risks of financial assets (absence and heterogeneity of data, differences in definitions and requirements, lack of a uniform methodology, limits of rating schemes) and also details the climate risk measurement methodologies and practical solutions employed by central banks publishing their own climate-related financial disclosures, i.e. the Bank of England, the Banque de France and the Magyar Nemzeti Bank.

Suggested Citation

  • Pal Peter Kolozsi & Sandor Ladanyi & Andras Straubinger, 2022. "Measuring the Climate Risk Exposure of Financial Assets - Methodological Challenges and Central Bank Practices," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 21(1), pages 113-140.
    • Handle: RePEc:mnb:finrev:v:21:y:2022:i:1:p:113-140
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    References listed on IDEAS

    as
    1. Emanuele Campiglio & Yannis Dafermos & Pierre Monnin & Josh Ryan-Collins & Guido Schotten & Misa Tanaka, 2018. "Climate change challenges for central banks and financial regulators," Nature Climate Change, Nature, vol. 8(6), pages 462-468, June.
    2. Emambakhsh, Tina & Giuzio, Margherita & Mingarelli, Luca & Salakhova, Dilyara & Spaggiari, Martina, 2022. "Climate-related risks to financial stability," Financial Stability Review, European Central Bank, vol. 1.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Gabor Szigel, 2022. "Carbon Intensity of Banks' Loan Portfolio - A Good Basis for Comparison in Case of Low-Income Countries?," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 21(4), pages 83-102.
    2. Pal Peter Kolozsi & Balazs Istvan Horvath & Judit Csutine-Baranyai & Veronika Tengely, 2022. "Monetary Policy and Green Transition," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 21(4), pages 7-28.

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    More about this item

    Keywords

    climate change; transparency; TCFD recommendations; financial disclosure;
    All these keywords.

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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