Climate Change and the Financial System
By I. Monasterolo. Annual Review of Resource Economics, 2020
251 citations recorded by the source corpus.
The financial system could help achieve the global climate targets by aligning investments to sustainability. However, investors are largely exposed to carbon-intensive assets that could become stranded, thus delaying the low-carbon transition and bringing new sources of risk for financial stability, i.e., climate-related financial risks. Here, we discuss climate-related financial risks, the challenges they pose to traditional economic and financial risk assessment, and the implications for the implementation and feasibility of climate policies. We then present science-based approaches that introduce forward-looking climate risks and their deep uncertainty in financial risk management (e.g., via the climate value at risk, climate spread, climate stress-test). Finally, we present results of applications aimed at pricing climate risks in investors’ portfolios and calculating the largest losses that could lead to systemic risk, in collaboration with leading financial institutions.
Subfields: Finance
View Paper: https://www.semanticscholar.org/paper/22f0afb91993c7f0f6d7c858ea28650ddb881959
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Finance
- G. Semieniuk
- Andrea Roventini
- Valentina Bosetti
- Francesco Lamperti
- Ulrich Volz
- Massimo Tavoni
- Emanuele Campiglio
Citations in the corpus
- Low‐carbon transition risks for finance (2020, background): “If this impact is unanticipated by investors, their assets would prematurely depreciate or “strand” (Caldecott, 2018), and if the stranding is widespread enough, it could engender financial instability and crisis (Monasterolo, 2020; van der Ploeg & Rezai, 2020a).”
- Three green financial policies to address climate risks (2021, background): “Notably, Battiston et al. (2017) and Battiston and Monasterolo (2020a) combines IAMs’ projections and economic data from relevant sectors to estimate the climate-related risks borne by various financial actors.”