Disclosure of climate change risk in credit ratings

Florian Walch, Miriam Breitenstein and Stefania Ciummo

No 303, Occasional Paper Series from European Central Bank

Abstract: Climate change can be a source of financial risk. This paper examines how credit rating agencies accepted by the Eurosystem incorporate climate change risk in their credit ratings. It also analyses how rating agencies disclose their assessments of climate change risks to rating users. The paper develops an analytical framework to compare the agencies’ definitions, methodologies, assessment models, data usage and disclosure practices. The paper reveals large differences in methodologies and disclosure practices across rating agencies and asset classes. The authors identify three main areas for improvement with respect to climate-related disclosures. These areas concern the level of granularity of definitions of climate change risk, the transparency around models and methods used to estimate the exposure to climate change risk and the disclosure of the magnitude of the impact of material climate change risk on credit ratings. JEL Classification: E52, E58, G24, G32, Q54

Keywords: climate change; credit rating agencies.; credit risk; monetary policy; risk management (search for similar items in EconPapers)
Date: 2022-09
New Economics Papers: this item is included in nep-ene, nep-env and nep-rmg
Note: 570737
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbops:2022303

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