Legal & Regulatory News

ECB publish preliminary results of economy-wide climate stress test

On 18 March 2021, the European Central Bank (ECB) published a blog post by Luis de Guindos, Vice-President of the ECB, which describes the framework and preliminary results of the economy-wide climate stress test currently being conducting by the ECB.

The climate stress test aims to assess the exposure of euro area banks to future climate risks by analysing the resilience of their counterparties under various climate scenarios.

The blog post indicates that the preliminary results show that, in the absence of further climate policies, the costs to companies arising from extreme climate events increase substantially, and greatly increase their probability of default. The blog post also suggests that there are clear benefits in taking action early and that the short-term costs of adapting to green policies are significantly lower than the potentially much higher costs arising from natural disasters in the medium to long term.

This post by the ECB suggests that climate change represents a major source of systemic risk, particularly for banks with portfolios concentrated in certain economic sectors and geographical areas.

Click here to access the ECB blog post.