Testing Capacity of the EU Banking Sector to Finance the Transition to a Sustainable Economy

17 Pages Posted: 26 May 2021

See all articles by Slavka Eley

Slavka Eley

European Banking Authority

Date Written: May 25, 2021

Abstract

Amidst increased attention on climate change, which is characterised by high uncertainties and long-term time horizons, the financial sector and supervisors are developing methods and approaches for the evaluation of climate-related financial risks.

This paper proposes a transition capacity testing system based on the EU Taxonomy for environmentally sustainable economic activities as a useful tool for banks and supervisors to identify the exposures that are most vulnerable to climate change, to improve understanding of the transition financing needs and to support the greening of the financial sector.

Keywords: Transition capacity testing, EU Taxonomy, climate scenario analysis, green asset ratio, transition capacity testing ratio, ratio not likely to transition

JEL Classification: G21, G24, G28, G32, Q54, Q56, Q58

Suggested Citation

Eley, Slavka, Testing Capacity of the EU Banking Sector to Finance the Transition to a Sustainable Economy (May 25, 2021). European Banking Authority Research Paper No. 13, Available at SSRN: https://ssrn.com/abstract=3852692 or http://dx.doi.org/10.2139/ssrn.3852692

Slavka Eley (Contact Author)

European Banking Authority ( email )

20 avenue André Prothin CS 30154
One Canada Square, Canary Wharf
92927 Paris, La Défense CEDEX E14 5AA
France

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