Financial risk and the transition to a low-carbon economy – Towards a carbon stress testing framework

16 September 2015 - Special issues - By : Romain HUBERT

By 2° Investing initiative : Hugues Chenet, Jakob Thomä, Didier Janci, With inputs from Romain Hubert (I4CE) Nick Robins, Peter Cruickshank (UNEP Inquiry ) and Stan Dupré (2°Invesing Initative).

On July 27th at Moody’s in New York, 2° Investing Initiative launched the report “Financial risk and the transition to a low-carbon economy” in partnership with UNEP Inquiry and I4CE. The report reviews the main approaches to assessing carbon risk along the investment chain and discusses barriers to its integration in decision making.

The report identifies two categories of climate-related financial risks to financial institutions: risks arising from physical climate change and “carbon risk” which arise from the transition to a low-carbon economy following one of the possible decarbonization pathways. The authors show that to date, risk factors resulting from climate change and the transition to a low-carbon economy are generally not taken into consideration by mainstream risk assessment and management frameworks; there are multiple reasons for this. The report reviews a number of “climate and carbon stress test” initiatives that suggest the materiality of these risks along the investment chain. The materiality of these risks for financial institutions and the financial system remains unclear. Financial regulators and policy makers, notably in France, the United Kingdom, and at the G20 level have nevertheless started responding to the issue.

Financial risk and the transition to a low-carbon economy – Towards a carbon stress testing framework Download

I4CE Contacts

Romain HUBERT

Project Manager – Financial regulation and Europe Email

To learn more

03/24/2023 Foreword of the week
International Day of Forests: carbon certification, adaptation and carbon sink

This week, for the International Day of Forests, I4CE offers you an overview of the forestry issues that are being debated in France and in Brussels. In our newsletter, you will discover a new blog post by Julia Grimault on European carbon certification and our latest analyses on the adaptation of French forests to climate change, the French carbon sink and the wood industry.
03/21/2023 Blog post Op-ed
European Carbon Certification: the unlikely alliance

The future European carbon certification framework is under intense debate. The first meeting of the expert group in charge of supporting the Commission has raised criticisms on the composition and mandate of this group, and the discussions have taken an unexpected turn by achieving the feat of bringing NGOs and CO2 Capture and Storage (CCS) industrialists to an agreement against natural carbon sinks, those of our forests or our agricultural soils. Where does this unlikely alliance come from?
03/17/2023 Foreword of the week
Net Zero Industry Act: Europe in the race for cleantech

The European Union still has a lot of work to do. Yesterday the European Commission published its Net Zero Industry Act, a piece of its response to the American Inflation Reduction Act, a necessary but still insufficient building block to keep the European Union in global cleantech race. It will also have to complete a number of directives and regulations to deliver its Green Deal. The EU election in 2024 is fast approaching, time is of the essence.

Financial risk and the transition to a low-carbon economy – Towards a carbon stress testing framework

Romain HUBERT

International Day of Forests: carbon certification, adaptation and carbon sink

European Carbon Certification: the unlikely alliance

Net Zero Industry Act: Europe in the race for cleantech