IDEAS home Printed from https://ideas.repec.org/a/nat/natcli/v7y2017i4d10.1038_nclimate3255.html
   My bibliography  Save this article

A climate stress-test of the financial system

Author

Listed:
  • Stefano Battiston

    (University of Zurich)

  • Antoine Mandel

    (Université Paris 1 Panthéon-Sorbonne, Centre d’économie de la Sorbonne, Maison des sciences économiques, 106-112 Boulevard de l’hôpital)

  • Irene Monasterolo

    (Frederick S. Pardee Center for the Study of the Longer Range Future, Boston University)

  • Franziska Schütze

    (Global Climate Forum)

  • Gabriele Visentin

    (University of Zurich)

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.

Suggested Citation

  • Stefano Battiston & Antoine Mandel & Irene Monasterolo & Franziska Schütze & Gabriele Visentin, 2017. "A climate stress-test of the financial system," Nature Climate Change, Nature, vol. 7(4), pages 283-288, April.
    • Handle: RePEc:nat:natcli:v:7:y:2017:i:4:d:10.1038_nclimate3255
    DOI: 10.1038/nclimate3255
    as

    Download full text from publisher

    File URL: https://www.nature.com/articles/nclimate3255
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1038/nclimate3255?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nat:natcli:v:7:y:2017:i:4:d:10.1038_nclimate3255. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.nature.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.