Default risk set to rise from climate inaction – ECB

‘Hothouse world’ scenario could see average probability of default increase significantly more than under both orderly or belated transition

The probability of default (PD) for the average eurozone bank’s corporate loan book could be 7.1% higher by mid-century if governments don’t act expeditiously to mitigate climate change, research from the European Central Bank (ECB) found.

In a ‘hothouse world’ scenario where no regulatory or policy action is taken to mitigate climate risk, the average corporate loan portfolio PD would initially drift up to 1.5% lower than in the baseline ‘orderly transition’ scenario, as companies forgo green