A re-evaluation of the financial risks of the net zero transition

39 Pages Posted: 31 Oct 2022 Last revised: 25 Apr 2023

See all articles by Matteo Gasparini

Matteo Gasparini

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School; University of Oxford, Smith School of Enterprise and the Environment

Moritz Baer

University of Oxford - Smith School of Enterprise and the Environment; University of Oxford - Institute for New Economic Thinking at the Oxford Martin School; UK Centre for Greening Finance and Investment (CGFI)

Matthew Ives

University of Oxford - Environmental Change Institute (ECI)

Multiple version iconThere are 2 versions of this paper

Date Written: April 24, 2023

Abstract

This paper examines the potential impact of climate change on financial risk and the uncertainty surrounding the outcomes of different mitigation scenarios. We use a consistent climate stress test model to evaluate the effect of three possible net zero scenarios on companies' valuations and financial investments. We find that the impact of the transition to net zero emissions could vary greatly for the same target (below 2°C) based on how the transition may unfold. We suggest that a wider range of scenarios and assumptions could help to better understand the uncertainty of the effects of climate change and the net zero transition on the financial system and discuss some of the implications.

Keywords: sustainable finance, climate change, stress testing, scenario analysis, risk management, financial risk

JEL Classification: Q51, Q43, G21, G32

Suggested Citation

Gasparini, Matteo and Baer, Moritz and Ives, Matthew, A re-evaluation of the financial risks of the net zero transition (April 24, 2023). Available at SSRN: https://ssrn.com/abstract=4254054 or http://dx.doi.org/10.2139/ssrn.4254054

Matteo Gasparini (Contact Author)

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School ( email )

Manor Road Building
Oxford, OX1 3UQ
United Kingdom

University of Oxford, Smith School of Enterprise and the Environment ( email )

Moritz Baer

University of Oxford - Smith School of Enterprise and the Environment ( email )

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School ( email )

Eagle House
Walton Well Road
Oxford, OX2 6ED
United Kingdom

UK Centre for Greening Finance and Investment (CGFI)

United Kingdom

Matthew Ives

University of Oxford - Environmental Change Institute (ECI) ( email )

South Parks Road
Oxford, OX1 3QY
United Kingdom

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