“ECB economy-wide climate stress-test”

In September 2021, the European Central Bank made a great leap in its climate-related supervisory activities. It published the results and methodologies of its first economy-wide climate stress test. Laura Parisi, team lead at the new Climate Change Centre at the ECB will present both at this upcoming webinar. From the abstract:

“This stress test comprises three main pillars: (i) climate-specific scenarios to project climate and macroeconomic conditions over the next 30 years; (ii) a comprehensive dataset that combines climate and financial information for millions of companies worldwide and approximately 1,600
consolidated euro area banks; (iii) a novel set of climate-specific models to capture the direct and indirect transmission channels of climate risk drivers for firms and banks.

The results show that there are clear benefits to acting early: the short-term costs of the transition pale in comparison to the costs of unfettered climate change in the medium to long term. Additionally, 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. […] Climate change thus represents a major source of systemic risk, particularly for banks with portfolios concentrated in certain economic sectors and specific geographical areas.