Systemic Climate Risk

Tristan Jourde and Quentin Moreaux

Working papers from Banque de France

Abstract: This paper introduces a market-based framework to study the effects of tail climate risks in the financial sector. In addition to identifying the financial institutions most vulnerable to physical and transition climate risks, our framework explores the potential for these risks to induce contagion effects in the financial sector. Based on the securities of large European financial institutions (including the UK) spanning from 2005 to 2022, we show that, unlike physical risk, transition risk significantly and increasingly influences systemic risk in the financial sector. We also examine the potential levers available to financial institutions and regulators to address climate-related financial risk.

Keywords: Climate Risks; Contagion; ESG; Financial Stability; Systemic Risk (search for similar items in EconPapers)
JEL-codes: G10 G20 G32 Q54 (search for similar items in EconPapers)
Pages: 118 pages
Date: 2025
New Economics Papers: this item is included in nep-fdg
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https://www.banque-france.fr/system/files/2025-06/WP993.pdf

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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:993

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