Climate Transition Risk: Quantifying the Impact of Carbon Taxation on the Investment Portfolio of Financial Institution
NOVEMBER 15, 2021

This study aims to contribute to the growing strand of literature on climate transition risk by estimating the short-term implications of a carbon taxation on the investment portfolios of the Maltese financial system. Adopting a static balance sheet assumption, this research study quantifies the financial losses arising on the investment portfolio (excluding government bond) following the possible implementation of a carbon tax. These losses are assessed from different perspectives, with results presented on a financial instrument level and also at industry and entity levels. It is observed that losses driven by climate transition through the simulations would overall be limited. The investment portfolio of the Maltese financial sector appears to be resilient to the introduction of a carbon tax, albeit a few institutions could experience noteworthy losses.