Frankfurt (awp/afp) – Losses linked to massive disinvestment in carbon industries would have a limited impact on the financial system in the euro zone, but more severe in the event of combined macroeconomic shocks, European supervisors and the European Central Bank said on Tuesday .
The 27 of the EU adopted a battle plan for the climate in 2021, with a set of measures called “Fit for 55”, in reference to the objective of 55% reductions in EU greenhouse gas emissions by 2030, broken down by sector, compared to 1990.
In this context, in March 2023 the European Commission tasked several European authorities, including the European Banking Authority (EBA) and the European Central Bank (ECB), with conducting a climate stress test in order to assess the resilience of the financial system. – banks, insurance companies, investment funds – in accordance with this objective.
A “Fit-for-55” implementation scenario leading to investor flight from the assets of carbon-intensive companies, called “Run-on-Brown”, would have a limited impact on stability financial, say the authorities in a joint press release.
These emitters from the fossil fuel sectors, coal, or other polluting activities will thus have less access to financing, complicating their transition to more sustainable models.
But the losses in the balance sheets of the banking, insurance, pension and investment funds sectors would remain measured, between 5.2% and 6.7% of exposures over an eight-year horizon, considering the impact on portfolio credits and market investments, it is specified.
Another more severe scenario studied, combining “Run-on-Brown” with macroeconomic shocks, leads to sharply increasing losses, up to 21.5% of exposures depending on the sector.
Enough to compromise the ability of the financial sector to support the green transition in Europe, according to the press release.
The result is that “a coordinated political approach (is necessary in Europe) to finance the green transition and the integration of climate risks into the risk management of financial institutions”, conclude the ECB and the other authorities involved.
The ECB carried out its own climate stress test with large banks in the euro zone in 2022, revealing that 60% of them do not have adequate systems to manage climate risks.
It has since given an ultimatum until the end of 2024 to banks to fully integrate these risks or face sanctions.
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