[PDF] Climate Transition Risk And Financial Stability In France eBook

Author : Rachel Lee
Publisher : International Monetary Fund
Page : 31 pages
File Size : 18,4 MB
Release : 2024-07-12
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This study empirically investigates the impact of the climate transition on the French financial sector using a micro-macro approach to examine the long-term effects of climate mitigation and decarbonization policies on sectoral output and the effects on firm profitability and the likelihood of corporate defaults. We employ a recursive-dynamic, multi-regional, multi-sectoral computable general equilibrium (CGE) model to simulate the Fit-for-55 climate scenario and then integrate the sectoral output paths derived from the model into firm-level corporate balance sheets and risks. We then assess the extent of credit exposure of banks to energy-intensive sectors. Our findings indicate that, under the Fit-for-55 scenario, the mining, chemicals and manufacturing sectors might face notable increases in their probability of defaults, in turn creating pockets of vulnerabilities in some parts of the banking system depending on their exposure to these energy-intensive sectors. This highlights the importance for a timely and orderly transition, including integrating climate transition plans into the prudential framework.

Author : Iulia Ruxandra Teodoru
Publisher : International Monetary Fund
Page : 36 pages
File Size : 33,31 MB
Release : 2024-08
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Climate change presents an unprecedented long-term challenge to the French and global economy. While France has made significant progress towards reducing greenhouse gas emissions, important additional policy efforts will be needed to meet key mitigation targets. Decarbonization costs and risks can be significant, highlighting the need to identify efficient and equitable fiscal and regulatory policy options to meet emission goals. To accelerate the green transition and mitigate its costs, France has increasingly relied on green spending measures, which could be complemented by higher carbon pricing and other revenue-neutral schemes. Recycling of revenues via cash transfers could offset the price impact on lower-income households. Over the medium term, new measures for road transportation, such as distance-based charges, could also be considered. Ensuring a timely and orderly climate transition will be critical to mitigate the credit risk impact on banks. French banks should also continue to mitigate climate transition risks by integrating them into their governance, strategy, and risk management processes.

Author : Mr. Dimitri G Demekas
Publisher : International Monetary Fund
Page : 45 pages
File Size : 36,41 MB
Release : 2021-12-17
Category : Business & Economics
ISBN : 1616356529

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There are demands on central banks and financial regulators to take on new responsibilities for supporting the transition to a low-carbon economy. Regulators can indeed facilitate the reorientation of financial flows necessary for the transition. But their powers should not be overestimated. Their diagnostic and policy toolkits are still in their infancy. They cannot (and should not) expand their mandate unilaterally. Taking on these new responsibilities can also have potential pitfalls and unintended consequences. Ultimately, financial regulators cannot deliver a low-carbon economy by themselves and should not risk being caught again in the role of ‘the only game in town.’

Author : International Monetary Fund. European Dept.
Publisher : International Monetary Fund
Page : 34 pages
File Size : 50,5 MB
Release : 2024-07-12
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France: Selected Issues

Author : Emily Webster
Publisher :
Page : 54 pages
File Size : 46,30 MB
Release : 2020
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Over the last several years there has been increasing recognition and acceptance of the threat that climate change poses to global financial stability and the concurrent need for corporations to identify and account for both climate-risks and their impacts on the environment. This has resulted in the emergence of climate-risk disclosure (CRD) as a voluntary standard as well as movement on the domestic level to introduce mandatory CRD, demonstrated by the introduction of CRD framework legalisation in France. This paper conducts a comparative analysis of France and the UK -- states that are adopting divergent methods of legal development towards CRD -- to analyse the potential of CRD as a policy tool to aid towards climate change mitigation and the transition to a low-carbon economy, and evaluate how effectively this is being achieved in practice.

Author : Marco Migliorelli
Publisher : Springer Nature
Page : 143 pages
File Size : 18,69 MB
Release : 2020-09-17
Category : Business & Economics
ISBN : 303054530X

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Despite growing discussions on the relationship between sustainability and finance, so far little attention has been given to the relation linking sustainability-related risks and financial risks. Climate change, environmental degradation and social inequality, among others factors, may indeed have considerable adverse impacts on financial actors and markets, and even have the potential to harm financial stability. Shedding light on the importance of the nexus between sustainability and financial risks, this book addresses the need for new industry and policy approaches. With insights from a skilled set of scholars in the finance field, this edited collection explores the effects of climate risks on the banking and insurance industries, the problem of stranded assets, the possible corporate risk management frameworks that could be used to control sustainability-related risks, the role of non-financial disclosure in fostering market discipline, and the policy actions needed to integrate sustainability considerations into prudential supervision. Tackling an interdisciplinary topic, this book will appeal to academics and practitioners within the finance, business and sustainability fields.

Author : Leonardo Martinez-Diaz
Publisher : U.S. Commodity Futures Trading Commission
Page : 196 pages
File Size : 45,72 MB
Release : 2020-09-09
Category : Science
ISBN : 057874841X

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This publication serves as a roadmap for exploring and managing climate risk in the U.S. financial system. It is the first major climate publication by a U.S. financial regulator. The central message is that U.S. financial regulators must recognize that climate change poses serious emerging risks to the U.S. financial system, and they should move urgently and decisively to measure, understand, and address these risks. Achieving this goal calls for strengthening regulators’ capabilities, expertise, and data and tools to better monitor, analyze, and quantify climate risks. It calls for working closely with the private sector to ensure that financial institutions and market participants do the same. And it calls for policy and regulatory choices that are flexible, open-ended, and adaptable to new information about climate change and its risks, based on close and iterative dialogue with the private sector. At the same time, the financial community should not simply be reactive—it should provide solutions. Regulators should recognize that the financial system can itself be a catalyst for investments that accelerate economic resilience and the transition to a net-zero emissions economy. Financial innovations, in the form of new financial products, services, and technologies, can help the U.S. economy better manage climate risk and help channel more capital into technologies essential for the transition. https://doi.org/10.5281/zenodo.5247742

Author : Mr. Dimitrios Laliotis
Publisher : International Monetary Fund
Page : 36 pages
File Size : 48,27 MB
Release : 2023-08-25
Category : Business & Economics
ISBN :

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This paper explores a novel forward-looking approach to study the financial stability implications of climate-related transition risks. We develop an integrated micro-macro framework with a new class of scenario called delayed-uncertain pathways. An additional stochastic financial modeling layer via a jump-diffusion process is considered to capture continuously changing risks, as well as the potential of large/sudden shocks in the financial markets. We applied this approach to study transition risks in the Mexican financial sector. But the implications are global in scope, and the framework is easily adaptable to other countries. We quantify the projections of future distributions of various risk metrics and, hence, the evolving tail risks due to compounding effects from delays in transitioning to a low-carbon economy and the consequent uncertainty of the future policy path. We find that the longer the delays in transition, the larger the future tail financial risks, which could be material to the overall system.

Author : Signe Krogstrup
Publisher : International Monetary Fund
Page : 58 pages
File Size : 47,79 MB
Release : 2019-09-04
Category : Business & Economics
ISBN : 1513511955

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Climate change is one of the greatest challenges of this century. Mitigation requires a large-scale transition to a low-carbon economy. This paper provides an overview of the rapidly growing literature on the role of macroeconomic and financial policy tools in enabling this transition. The literature provides a menu of policy tools for mitigation. A key conclusion is that fiscal tools are first in line and central, but can and may need to be complemented by financial and monetary policy instruments. Some tools and policies raise unanswered questions about policy tool assignment and mandates, which we describe. The literature is scarce, however, on the most effective policy mix and the role of mitigation tools and goals in the overall policy framework.

Author : Javier Ojea-Ferreiro
Publisher :
Page : pages
File Size : 33,25 MB
Release : 2022
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Transitioning to a low-carbon economy involves risks for the value of financial assets, with potential ramifications for financial stability. We quantify the systemic impact on financial firms arising from changes in the value of financial assets under three climate transition scenarios that reflect different levels of vulnerability to the transition to a low-carbon economy, namely, orderly transition, disorderly transition, and no transition (hot house world). We describe 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 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 default premium, yield slope and inflation 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 is relatively manageable. Simulation of climate risks over a five-year period shows that disorderly transition can be expected to imply significant costs for banks, while financial services and real estate firms remain more sheltered.