Carbon Risk and Financial Institutions

Martin Hellmich and Rüdiger Kiesel

Chapter 12 in Carbon Finance:A Risk Management View, 2021, pp 231-243 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Carbon risk impacts systematic risk because the transition away from high-carbon production systems will have economy-wide effects (see Battiston et al. (2017) and Dietz et al. (2018)). While the magnitude of climate-related financial risks is highly uncertain, there is consensus that carbon risk already impacts financial institutions and will continue to do so. Thus, risk-management approaches have to be developed to extend standard risk-management practice to cope with carbon risk. We present a brief introduction to this topic, review the role of central banks in this context, and describe stress tests, which are a major tool to assess carbon risk.

Keywords: Climate Finance; Carbon Risks; Transition Risks; Emission Certificates; Green Bonds; Carbon Credits; Stress Tests; Machine Learning; Physical Risks; Carbon Markets; Carbon Disclosure; Carbon-Intensity; Commodity Markets; Climate Economics; Climate Risks; Big Data; Emission Certificates; Carbon Investors; Divestment (search for similar items in EconPapers)
JEL-codes: G1 G32 Q5 Q54 (search for similar items in EconPapers)
Date: 2021
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