Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Interlinked climate risks could ripple through euro zone, ECB study says

Economy Jul 26, 2022 06:43AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A symphony of light consisting of bars, lines and circles in blue and yellow, the colours of the European Union, illuminates the south facade of the European Central Bank (ECB) headquarters in Frankfurt, Germany, December 30, 2021. REUTERS/Wol

FRANKFURT (Reuters) - Climate shocks could quickly ripple through the euro zone economy as financial interlinkages amplified dangers and losses, a study by the European Central Bank and the EU's risk watchdog, the European Systemic Risk Board, said on Tuesday.

The ECB, which supervises the biggest banks in the 19-country euro zone, has for years argued that climate change is a top risk and has pushed lenders to acknowledge and reduce their exposures, but with little success so far.

"No meaningful reduction in emission intensity in the loan portfolios of euro area banks has taken place in recent years," the report said. Among banks, "exposures to climate-related losses also remain concentrated ..., with more than 20% of potential losses residing in the holdings of 5% of euro area banks."

Climate shocks will have an abrupt impact on market prices, initially hitting portfolios of investment funds, pension funds and insurance companies, according to the report. This sudden repricing will then lead to defaults and losses for lenders.

"In a disorderly transition scenario, marked by an immediate and substantial increase in carbon prices, respective market losses of insurers and investment funds could potentially amount to 3% and 25% (of) stress-tested assets in the near term," the report said.

These market dynamics could then amplify each other, because a climate risk could quickly reduce the value of assets and lead to fire sales. Financial institutions would dispose of a large number of exposed assets at distressed prices, leading to a downward spiral in valuations.

Beyond the corporate sector, households also appeared to be vulnerable, with almost half of outstanding home loans having been to made to borrowers who have high ratios of energy costs to income, the report added.

An orderly green transition, however, would reduce corporate defaults by up to a fifth in 2050, the report estimates.

While there are no regulatory instruments in place for such risks, systemic risk buffers or concentration thresholds to reduce exposure to carbon-intensive sectors could reduce dangers, the report adds.

Interlinked climate risks could ripple through euro zone, ECB study says
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email