Systemic Climate Risk

100 Pages Posted: 23 Dec 2022 Last revised: 26 Mar 2024

See all articles by Tristan Jourde

Tristan Jourde

Banque de France

Quentin Moreau

Hong Kong University of Science and Technology

Date Written: December 12, 2022

Abstract

This paper introduces a novel market-based framework to study the effects of tail climate risks in the financial sector. In addition to identifying the financial institutions most vulnerable to physical and transition climate risks, our framework explores the potential for these risks to induce contagion effects within the financial sector. Based on the securities of large European financial institutions spanning 2005 to 2022, we show that, unlike physical risks, transition risks significantly and increasingly influence systemic risk in the financial sector. We find that financial institutions with cleaner investment and lending portfolios and with a long-term orientation exhibit lower exposure to transition risks, providing valuable guidance to financial institutions and regulators in addressing climate-related financial risks.

Keywords: Climate risk, contagion, ESG, financial stability, systemic risk

JEL Classification: G10, G20, G32, Q54

Suggested Citation

Jourde, Tristan and Moreau, Quentin, Systemic Climate Risk (December 12, 2022). Available at SSRN: https://ssrn.com/abstract=4300469 or http://dx.doi.org/10.2139/ssrn.4300469

Tristan Jourde (Contact Author)

Banque de France ( email )

Paris
France

Quentin Moreau

Hong Kong University of Science and Technology

Hong Kong

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

Paper statistics

Downloads
898
Abstract Views
2,878
Rank
50,549
PlumX Metrics