Acting early to tackle climate change has “clear economic benefits”, according to the results of the first climate stress test applied to more than four million companies and 1,600 banks in the euro area, published by the European Central Bank (ECB) on Wednesday 22 September.
According to the authors of the report, “the short-term costs of the transition pale in comparison to the costs of unfettered climate change in the medium to long term”. And “the early adoption of policies to drive the transition to a zero-carbon economy also brings benefits in terms of investing in and rolling out more efficient technologies”.
The ECB has identified two types of risks: - the physical risk related to the economic impact of an increase in the frequency and scale of natural disasters; - the transition risk associated with the costs of imposing coercive measures to reduce CO2 emissions.
The Frankfurt Institute’s climate stress test shows that, for euro area banks, expected losses on corporate loan portfolios significantly increase over time as physical risk continues to rise and could become “critical” within 30 years. And in 2050, the average corporate loan portfolio of a euro area bank is 8% more likely to default under the hot house world scenario than under an orderly transition.
And the ECB concludes: “Climate change thus represents a major source of systemic risk, particularly for banks with portfolios concentrated in certain economic sectors and, more importantly, in specific geographical areas” exposed to natural disasters, especially those close to rivers or on the coast.
See the report: https://bit.ly/3EEFLAB (Original version in French by Mathieu Bion)