Financial Risk and the Transition to a Low-Carbon Economy: Towards a Carbon Stress Testing Framework

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Authors :
Hugues Chenet, Jakob Thomä, Didier Janci, Romain Hubert, Nick Robins, Peter Cruickshank, Stan Dupré
Organisation:
Inquiry into the Design of a Sustainable Financial System (UN Environment Inquiry), 2° Investing Initiative (2DII), Caisse des Dépôts (CDC)

Climate change creates two types of potential risks for financial institutions: physical climate risks leading to physical damage to assets, and carbon risks altering the financial viability of a part of the capital stock and business models.

This report looks at how to integrate these two risks into financial risk and valuation models and it shows that there are no fundamental barriers to this integration. In addition, it underlines that addressing this challenge requires not just a focus on the models but also risk management practices.

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Themes :
Key search terms :
global climate
assessments
greenhouse gas emissions
climate change
modelling
financial management
financial sector