ECB's Economy-Wide Climate Stress Test

91 Pages Posted: 23 Sep 2021

See all articles by Nepomuk Dunz

Nepomuk Dunz

World Bank

Tina Emambakhsh

European Central Bank (ECB)

Tristan Hennig

International Monetary Fund (IMF)

Michiel Kaijser

European Central Bank (ECB)

Charalampos Kouratzoglou

European Central Bank (ECB)

Carmelo Salleo

European Central Bank (ECB)

Date Written: September, 2021

Abstract

Climate change is one of the greatest challenges facing humankind this century. If left unchecked, it is likely to result in more frequent and severe climatic events, with the potential to cause substantial disruption to our economies, businesses and livelihoods in the coming decades. Yet the associated risks remain poorly understood, as climate shocks differ from the financial shocks observed during previous crises. This paper describes the ECB’s economy-wide climate stress test, which has been developed to assess the resilience of non-financial corporates (NFCs) and euro area banks to climate risks, under various assumptions in terms of future climate policies. This stress test comprises three main pillars: (i) climate-specific scenarios to project climate and macroeconomic conditions over the next 30 years; (ii) a comprehensive dataset that combines climate and financial information for millions of companies worldwide and approximately 1,600 consolidated euro area banks; (iii) a novel set of climate-specific models to capture the direct and indirect transmission channels of climate risk drivers for firms and banks.

Keywords: climate scenarios, climate stress-test, physical risk, transition risk

JEL Classification: C53, C55, G21, G38, Q54

Suggested Citation

Dunz, Nepomuk and Emambakhsh, Tina and Hennig, Tristan and Kaijser, Michiel and Kouratzoglou, Charalampos and Salleo, Carmelo, ECB's Economy-Wide Climate Stress Test (September, 2021). ECB Occasional Paper No. 2021/281, Available at SSRN: https://ssrn.com/abstract=3929178 or http://dx.doi.org/10.2139/ssrn.3929178

Nepomuk Dunz

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Tina Emambakhsh

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Tristan Hennig

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Michiel Kaijser

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Charalampos Kouratzoglou

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Carmelo Salleo

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
362
Abstract Views
1,134
Rank
157,583
PlumX Metrics