Quotation Battiston, Stefano, Monasterolo, Irene. 2018. A carbon risk assessment of central banks’ portfolios under a 2C aligned climate scenarios. Scaling up Green Finance: The Role of Central Banks, Bundesbank, Germany, 8.11-9.11. Invited Talk


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Abstract

We develop a novel methodology for the carbon risk assessment of central banks' portfolios under 2C aligned climate scenarios, and we apply it to the Oesterreichische Nationalbank’s non-monetary policy portfolio. First, we develop asset-specific models to price in climate transition risk in today’s value of corporate bonds, equity and sovereign bonds under mild or tight climate policy scenarios by 2030. Then, we introduce the notion of climate spread and we estimate the changes in 10-years sovereign bonds’ value by 2030, considering country-specific fiscal and debt conditions, and the carbon-intensity of their GDP and revenues. We focus on sovereign bonds because they are the largest share of central banks’ portfolio. Finally, we identify the largest gains and losses for the central bank that could have systemic effects. Negative shocks are induced by the inability of policy makers to timely introduce effective policies, and the inability of investors to timely adapt their business. Largest negative shocks and thus losses are associated to the sovereign bonds of countries whose GDP is highly dependent on fossil fuels extraction, production and trade. In contrast, positive shocks and thus gains are associated to South European and Baltic countries characterized by GDP decoupling. Our analysis is intended to support central banks' understanding of the conditions for the onset of climate-related financial risk, and the strategies for their mitigation, in relation to the emerging role of Green Finance within the European Union’s agenda.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Paper presented at an academic conference or symposium
Language English
Title A carbon risk assessment of central banks’ portfolios under a 2C aligned climate scenarios
Event Scaling up Green Finance: The Role of Central Banks
Year 2018
Date 8.11-9.11
Country Germany
Location Bundesbank
Invited Talk Y

Associations

People
Monasterolo, Irene (Details)
External
Battiston, Stefano (University of Zurich, Switzerland)
Organization
Institute for Ecological Economics IN (Details)
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