Climate Change and the Irish Financial System

Philip Lane

No 1/EL/19, Economic Letters from Central Bank of Ireland

Abstract: In this Economic Letter, I describe the challenges posed by climate change for the Irish financial system. An increase in the frequency of severe weather events has implications for macroeconomic outcomes, asset prices, house prices, credit risks and the cost and coverage of insurance contracts. In addition, the necessary transition to a low-carbon economy (supported by a phased schedule of increasing carbon taxes) requires considerable investment by households, firms and the government. If the pace of transition is too slow, a sharper adjustment will be ultimately required, posing macroeconomic and financial stability risks. As the macroprudential authority, the Central Bank will need to ensure that these financial stability risks are contained by improving the climate resilience of the financial system. As the prudential and conduct regulator, the Central Bank also has a lead role in ensuring that financial firms incorporate climate change into strategic and financial plans, while ensuring that consumers have sufficient information to navigate the financial risks posed by climate change.

Date: 2019-02
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