This paper received an Honorable Mention from the 2024 E-Axes Forum Research Committee
From the Abstract:
This paper proposes a market-based framework to study systemic climate risks in the financial sector. Our framework aims to identify the financial institutions most vulnerable to physical and transition climate risks and proposes a test to estimate whether climate risks can generate contagion effects in the financial sector. We apply our framework to large European financial institutions and show that, unlike physical risk, transition risk significantly influences systemic risk. We also show that the exposure to transition risk appears lower for institutions with cleaner investment and lending portfolios and long-term orientation.
