Journal of Risk
ISSN:
1465-1211 (print)
1755-2842 (online)
Editor-in-chief: Farid AitSahlia
Need to know
- This paper introduces a method for portfolio valuation under a climate transition stress test, using NGFS scenarios and the Transition Vulnerability Factors as introduced by The Dutch Central Bank.
- We demonstrate the method for artificial investment portfolio with bond and equity positions in European industries.
- The outcomes show that the chemicals, energy, gas, air conditioning supply and transport sector are most severely hit by transitions towards a carbon-free economy.
- Sectors like financial services, telecommunications, legal, accounting and consulting are hardly influenced by transition measures.
Abstract
This paper introduces a method for climate change stress testing for financial institutions. Assuming a portfolio of equities and corporate bonds of European companies, this method can assess how the portfolio value changes under a transition toward a carbon-free economy. We use the current policies and delayed transition scenarios of the Network for Greening the Financial System to project transition vulnerability factors, as introduced by the Dutch central bank. These factors are applied to project equity prices and corporate bond ratings over the period 2024–50. The stress test reveals a strong decline in equity prices and downgrades of bonds for the chemicals, energy, gas and air conditioning supply, and transport sectors. Financial institutions and legal, accounting and consultancy firms are less severely hit by transition measures.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
