Climate change is already having huge impacts on investor portfolios and financial flows around the world. The interconnected nature of the economy and of the financial sector will continue to amplify climate risks.
The European financial sector is exposed to climate physical risks that originate from firms located outside Europe. The interconnected nature of the economy and of the financial sector contribute to amplify such risks. Through empirical analysis and financial network modelling, we will identify the channels through which European financial actors are exposed to extra-European climate physical risks; assess the impact of such risk in the value of investors’ portfolios, and analyse how the financial network structure contributes to reverberate such risks in the financial sector. The analysis benefits from knowledge co-produced in dialogue with European financial stakeholders.
- We will build a global database of financial exposures (e.g. equity holdings) of European financial actors (e.g. banks, insurance firms) and the whole financial sector to extra-European economic activities affected by climate physical risk
- We will build on advances on financial valuation in network models to assess how climate-related financial risk cascades within the European financial sector and identify the channels through which risk spreads across institutions.
- In knowledge co-production exercised with stakeholders, we will drive awareness at those institutions which need it most. We will identify appropriate changes in business models, portfolio allocation strategies and public policies to reduce the exposure of European investors to climate-related risks and make use of arising opportunities.