Seminars & webinars
29 November, 2021

FEEM Online Event - The impact of climate transition risks on financial stability. A systemic risk approach

Where: online


Event's Timetable:

Monday - 29th November 2021 - 5.00 PM


To participate please register here


Javier Ojea-Ferreiro
Joint Research Centre of the European Commission


Transitioning to a low-carbon economy involves risks for the value of financial assets, with potential ramifications for financial stability. In this paper, we quantify the systemic impact on financial firms arising from changes in the value of financial assets under three climate transition scenarios – hot house world, orderly transition, and disorderly transition – reflecting different levels of vulnerability in the transition to a low-carbon economy. We present three systemic risk metrics computed from a copula-based model of dependence between financial firm returns and financial asset market returns: climate transition expected returns, climate transition value-at-risk, and climate transition expected shortfall. Empirical evidence for European financial firms over the period 2013-2020 indicates that the impact of climate transition risk varies across sectors and countries, with banks and real estate firms experiencing the highest and lowest systemic impacts from a disorderly transition, respectively. We find that firm size, return on assets and default premium are the main drivers of climate transition risk, and that, in terms of capital shortfall, the cost of rescuing more risk-exposed financial firms from climate transition losses are relatively manageable. Simulation of climate risks over the next five-year period shows that disorderly transition is expected to lead to a significant cost for banks, while financial services and real estate firms remain more sheltered from risk.

Download file
Download file

FEEM Newsletter & Update

Subscribe to stay connected.

Your personal data will be processed by Fondazione Eni Enrico Mattei. – data Controller – with the aim of emailing the FEEM newsletter & Update. The use of Your email address is necessary for the implementation of the newsletter service. You are invited to read the Privacy Policy in order to obtain additional information about the protection of Your rights.

Check this
page in italian
This Website uses technical cookies and cookie analytics, as well as “third party” profiling cookies.
If you close this banner or you decide to continue navigating on this Website, you express consent to the use of cookies. If you need additional information or you wish to express selective choices on the use of cookies, please refer to the   Cookie PolicyI agree