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Sensitivity analysis of climate-related transition risks in the German financial sector

Author

Listed:
  • Schober, Dominik
  • Etzel, Tobias
  • Falter, Alexander
  • Frankovic, Ivan
  • Gross, Christian
  • Kablau, Anke
  • Lauscher, Pierre
  • Ohls, Jana
  • Strobel, Lena
  • Wilke, Hannes

Abstract

Climate-related risks arising from the transition to a low-carbon economy may expose potential vulnerabilities in the financial system. In this article, we develop and describe a set of tools for analysing these risks and apply them to the German financial system. The use of longterm, consistent climate scenarios that have been developed as part of the joint work of the Network for Greening the Financial System (NGFS) allows the effects of the transition to be modelled and then mapped to the financial system. We use a comprehensive dataset in terms of the financial intermediaries and financial instruments reviewed, and demonstrate that the aggregated potential portfolio losses from an unexpected change in climate policy are within the low to medium single-digit percentage range for individual financial sectors. Individual financial intermediaries are more severely affected by transition risks. Uncertainty about the current expectations of market participants leads to results that may deviate by up to 40% from the potential portfolio losses calculated.

Suggested Citation

  • Schober, Dominik & Etzel, Tobias & Falter, Alexander & Frankovic, Ivan & Gross, Christian & Kablau, Anke & Lauscher, Pierre & Ohls, Jana & Strobel, Lena & Wilke, Hannes, 2021. "Sensitivity analysis of climate-related transition risks in the German financial sector," Technical Papers 13/2021, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubtps:283339
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    More about this item

    Keywords

    climate scenarios; climate transition risks; macroeconomic and financial impacts; financial stability analysis; sensitivity test; carbon pricing;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • 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

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