The European Central Bank (ECB) has published the results of its economy-wide climate stress test. The exercise tested the impact of climate change on more than four million firms worldwide and 1,600 euro-area banks under three different climate policy scenarios.
The results show that firms and banks clearly benefit from adopting green policies early on to foster the transition to a zero-carbon economy. The exercise also reveals that the impact of climate risk is concentrated in certain regions and sectors of the euro area. In particular, firms located in regions most exposed to physical risk could face very severe and frequent natural disasters, which would in turn affect their creditworthiness.
In a nutshell:
- Firms and banks to be severely affected if climate change issues not addressed.
- Orderly and swift transition to minimise costs and maximise benefits outweighs short-term cost of transition to zero-carbon economy over medium to longer term.
- Investment in sectors and regions heavily exposed to climate risk set to suffer most.