Compounding COVID-19 and climate risks: The interplay of banks’ lending and government’s policy in the shock recovery

The Double Materiality of Climate Physical and Transition Risks in the Euro Area

“…22 Therefore, our paper not only confirms, via modelling tools, the importance of the double materiality principle to enhance disclosures, but could also support the calibration of prudential instruments to account for and internalise such Finally, our analysis highlights the importance of strengthening climate scenarios, and in particular physical risk scenarios (Ranger et al, 2022) for climate financial risk assessment. There is an urgent need to include acute shocks on assets (Bressan et al, 2022) and the potential compounding of shocks (Dunz et al, 2021a), and combination with chronic shocks. This would allow for estimating larger shocks on GDP before 2050, with potential for economic recession, making the scenarios more relevant for banks' climate stress test exercises.…”

“…Using the EIRIN model (Monasterolo and Raberto, 2018;Dunz et al, 2021a), we quantitatively assess the double materiality feedback loop represented in figure 1, focusing on the credit and bonds markets, and on commercial banks and the ECB as financial actors. Capturing the finance-economyclimate feedback is fundamental to assess the double materiality of climate risks.…”

“…For a detailed description of all sectors, market interactions and behavioural equations, refer to Monasterolo and Raberto (2018), Monasterolo and Raberto (2019), and Dunz et al (2021a).…”

Multiform flood risk in a rapidly changing world: what we do not do, what we should and why it matters

“…With more intense floods, and many with increasing duration and spatial extent [28], greater attention is needed to assess how compound events, including multiform flood events, have both changed over time and how they may evolve due to climate change [9,29]. Multiform flood risk could potentially lead to tail risk, amplifying the magnitude and persistence of economic shocks [30], in turn leading to economic losses that negatively affect public financial stability by decreasing fiscal revenues and leading to increases in public debt particularly in conditions of pre-existing high stock of debt and limited or no economic growth. In addition, multiform flood risk could affect the financial stability of individual financial actors and of the financial system as a whole.…”

An analysis of the social distancing effects on global economy and international finance using causal loop diagrams

“…Jia et al [10] investigate the effects of decreasing oil price during the COVID-19 pandemic on China and conclude its influence on GDP is less than that of the pandemic, but it leaves a significantly negative impact on the low-carbon economy. Dunz et al [11] find the restricted lending decisions by banks in Mexico limit the firms’ ability to finance their investments and an expansionary fiscal policy is crucial for the economic recovery. Hewa-Wellalage et al [12] analyze a cross-country sample of 8,921 private firms and deduce creditors favor female entrepreneurs when dealing with cash flow challenges during the COVID pandemic.…”