Banks and Environmental Sustainability: Some Financial Stability Reflections

International Research Centre on Cooperative Finance, October 2017

34 Pages Posted: 8 Dec 2017

Date Written: October 31, 2017

Abstract

A growing consensus exists that climate change risks have important implications for financial stability. Following Weyzig et all (2014) methodology, this paper quantifies the (syndicated) loan exposure to elevated environmental risk sectors of the banking system in the US, EU, China, Japan and Switzerland in USD 1.6 trill and highlights the importance in terms of total banking assets. Hence, the relevance of exploring prudential policy responses including a harmonized statistical and reporting framework, which could contribute to internalizing the negative externalities associated with climate risks by both banks and their supervisors. Among the prudential supervisory tools, credit registers facilitate the assessment of environmental risk drivers in “carbon stress tests” (ESRB, 2016) formulated to assess the sensitivity of loan quality to changes in climate risk factors such as disruptive technology shocks. These recommendations could contribute to make the Recommendations of the Task Force on Climate operational – related Financial Disclosures for banks (TCFD b, June, 2017).

Keywords: Public Goods, Environment, Banks

JEL Classification: G00, G21, H41, O13

Suggested Citation

Nieto, Maria J., Banks and Environmental Sustainability: Some Financial Stability Reflections (October 31, 2017). International Research Centre on Cooperative Finance, October 2017. Available at SSRN: https://ssrn.com/abstract=3082107 or http://dx.doi.org/10.2139/ssrn.3082107

Maria J. Nieto (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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