Let's Talk About the Weather: The Impact of Climate Change on Central Banks

Batten, Sandra; Sowerbutts, Rhiannon; Tanaka, Misa

doi:10.2139/ssrn.2783753

Cited by 195 publications

(175 citation statements)

References 28 publications

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“…In stark contrast, the potential effect of a carbon bubble on financial stability is vigorously discussed by researchers (Weyzig, Kuepper, van Gelder, and van Tilburg 2014;Schoenmaker, van Tilburg, and Wijffels 2015;Batten, Sowerbutts, and Tanaka 2016) and increasingly enters the agenda of regulators and supervisors (Bank of England 2015;Carney 2015;ESRB 2016). Thus, while discussing potential implications of a carbon bubble, the clarification of the existence and the extent of a carbon bubble are essential.…”

Section: Existing Empirical Literature and The Cost Of Loansmentioning

confidence: 99%

“…The event study by Batten, Sowerbutts, and Tanaka (2016) analyzes the market reaction to climate change news that covers the period 2011-2016. They classify an event as a news story in a major newspaper or energy-specific investment press, which contains the words "carbon bubble", "unburnable carbon", or "fossil fuel divestment".…”

Section: Existing Empirical Literature and The Cost Of Loansmentioning

confidence: 99%

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Being Stranded on the Carbon Bubble? Climate Policy Risk and the Pricing of Bank Loans

2018

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Does neglecting the possibility that fossil fuel reserves become "stranded" result in a "carbon bubble", i.e., an overvaluation of fossil fuel firms? To address this question, we study whether banks price the climate policy risk. We hand collect global data on corporate fossil fuel reserves, match it with syndicated loans, and subsequently compare the loan rate charged to fossil fuel firms -along their climate policy exposure -to non-fossil fuel firms. We find that before 2015 banks did not price climate policy risk. After 2015, however, the risk is priced, especially for firms holding more fossil fuel reserves. We also provide some evidence that "green banks" charge marginally higher loan rates to fossil fuel firms.

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Section: Existing Empirical Literature and The Cost Of Loansmentioning

confidence: 99%

Section: Existing Empirical Literature and The Cost Of Loansmentioning

confidence: 99%

Being Stranded on the Carbon Bubble? Climate Policy Risk and the Pricing of Bank Loans

2018

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“…Transition risks are those that could arise from a sudden and disorderly transition to a low-carbon economy. Physical risks are "those risks that arise from the interaction of climate-related hazards (including hazardous events and trends) with the vulnerability of exposure of human and natural systems" (Batten et al, 2016). Liability risks stem from "parties who have suffered loss from the effects of climate change seeking compensation from those they hold responsible" (Carney, 2018, p.2).…”

Section: Introductionmentioning

confidence: 99%

“…Liability risks stem from "parties who have suffered loss from the effects of climate change seeking compensation from those they hold responsible" (Carney, 2018, p.2). Nevertheless, central banks and regulators, with few exceptions (Batten et al, 2016;Carney, 2018;Dikau and Ryan-Collins, 2017;Campiglio et al, 2018), seem to overlook climate objectives in practice (Monnin, 2018). A possible explanation for this neglect is related to the models traditionally used by central banks, which "are not well suited to capturing the effects of climate change or the complexity of the economic transition" (Sevillano and Gonzalez, 2018, p.129).…”

Section: Introductionmentioning

confidence: 99%

Fostering green investments and tackling climate-related financial risks: Which role for macroprudential policies?

D’Orazio¹,

Popoyan

2019

Ecological Economics

209

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. AbstractWhile there is a growing debate among researchers and practitioners on the possible role of central banks and financial regulators in supporting a smooth transition to a low-carbon economy, the information on which macroprudential instruments could be used for reaching the "green structural change" is still quite limited. Moreover, the achievement of climate goals is still affected by the so-called "green finance gap". The paper addresses these issues by proposing a critical review of existing and novel prudential approaches to incentivizing the decarbonization of banks' balance sheets and align finance with sustainable growth and development objectives. The analysis carried out in the paper allows understanding under which conditions macroprudential policy could tackle climate change and promote green lending, while containing climate-related financial risks. JEL Classification: E50, E52, G28, Q50, Q58

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“…On the other hand, climate risks could also result from the transition to a low-carbon economy (i.e., transition risk, ESRB 2016; Batten et al 2016). In this context, there are at least three sources of shocks that could limit the ability of market participants to fully anticipate price adjustments of carbon-intense assets.…”

Section: Introductionmentioning

confidence: 99%

Vulnerable yet relevant: the two dimensions of climate-related financial disclosure

et al. 2017

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Market-based solutions to climate change are widely advocated by financial actors and policy makers in order to foster a smooth transition to a low-carbon economy. A first important limiting factor to this approach is widely recognized to be the imperfect information on investors' portfolios' exposure to climate-related risks. While better disclosure of climaterelevant information is often recommended as a remedy, the current lack of concise and comparable measures of portfolios' exposure to climate risk fails to provide major investors with the full incentives to reallocate their portfolios. A second limiting factor arises from the fact that in the context of the low-carbon transition, it is not clear how to measure the market share of participants because many economic sectors produce greenhouse gases (GHG) emissions or induce them along the supply chain. The lack of common and concise measures of the relevant market share hampers the ability of policy makers to ensure fair competition policies and the ability of major investors to assess the effects of their own and their competitors' portfolio reallocation. To address these two gaps, we propose two novel and complementary indices: (i) the BGHG exposure,^capturing the exposure of single investors' portfolios to climate transition risks, and (ii) BGHG holding,^capturing the market share of each financial actor weighted by its contribution to GHG emissions. We illustrate the use of the indices on a dataset of portfolios of equity holdings and loans in the Euro-Area, and we discuss the policy implications for the low-carbon transition.

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Let's Talk About the Weather: The Impact of Climate Change on Central Banks

Cited by 195 publications

References 28 publications

Being Stranded on the Carbon Bubble? Climate Policy Risk and the Pricing of Bank Loans

Being Stranded on the Carbon Bubble? Climate Policy Risk and the Pricing of Bank Loans

Fostering green investments and tackling climate-related financial risks: Which role for macroprudential policies?

Vulnerable yet relevant: the two dimensions of climate-related financial disclosure

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