Positively green: Measuring climate change risks to financial stability

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Positive measurement of the impacts of climate change is needed to underpin an increasingly heated normative debate. In the sphere of financial stability, there is currently a dearth of sufficiently encompassing and reliable information on risks resulting from climate change. This report evaluates how this information gap can be filled for European Union (EU) Member States, leveraging existing data and methodologies. In particular, the report draws insights from granular supervisory datasets based on available carbon emissions reporting and makes use of existing economic and financial models to gauge potential near-term risks. While climate change reporting by banks and firms alike remains patchy, available datasets and methodologies nonetheless already shed considerable light on financial stability risk exposures. In this context, this report tackles four questions: (i) what magnitude of climate-related shocks can be expected?, (ii) are financial markets pricing the prospect of such shocks (or building capacity to do so in the future)?, (iii) what are the exposures of banks and insurers (based on available disclosures) to potential repricing of climate-related risk?, and (iv) what can we learn from forward-looking scenario analysis to determine where further investment is needed?