Climate Risk with Particular Emphasis on the Relationship with Credit-Risk Assessment: What We Learn from Poland

Natalia Nehrebecka

doi:10.3390/en14238070

Abstract

This research seeks to identify non-financial enterprises exposed to the climate risk relating to transition risks and at the same time use of bank loans, as well as to conduct stress tests to take account of the financial risk related to climate change. The workflow through which to determine the ability of the banking sector to assess the potential impact of climate risk entails parts based around economic sector and company level. The procedure based on the sectoral level identifies vulnerable economic sectors (in the Sectoral Module), while the procedure based on company level (the Company Module) refers to scenarios presented in stress tests to estimate the probability of default under stressful conditions related to the introduction of a direct carbon tax. The introduction of the average direct carbon tax (EUR 75/tCO2) in fact results in increased expenditure and reduced sales revenues among enterprises from sectors with a high CO2 impact, with the result being a decrease in the profitability of enterprises, along with a simultaneously higher level of debt; an increase in the probability of default (PD) from 3.6%, at the end of 2020 in the baseline macroeconomic scenario, to between 6.31% and 10.12%; and increased commercial bank capital requirements. Financial institutions should thus use PD under stressful conditions relating to climate risk as suggestions to downgrade under the expert module.

Highlights

The range of knowledge related to climate change and the consequences of excessive emissions of harmful gases has expanded
It is worth mentioning that the final report on EU taxonomy, developed by the Technical Expert Group (TEG) on Sustainable Finance, provides recommendations for an overarching taxonomy design, as well as guidance on how companies and financial institutions can make disclosures using the taxonomy
The impact of transition risk on the real economy and CO2 -emitting industries was evaluated by reference to aggregate-level emissions [36], and to the criteria that: (i) the share of CO2 emissions nationally is greater than 1%, and (ii) there is affiliation with the national economy’s top 15 sectors in terms of intensity of emission of CO2 or other GHGs (Tables 1 and 2, based on Eurostat data, 2017)

Summary

Introduction

The range of knowledge related to climate change and the consequences of excessive emissions of harmful gases has expanded. In this regard, there has been an increased interest in investments aimed at environmental protection. The establishment of an appropriate framework for the involvement of the financial system in environmentally and socially sustainable (as well as sustainably managed) projects is supported by a number of European initiatives. This may lead to a change in traditional financing. The price of CO2 emission allowances is corrected by the emissivity of a given technology, e.g., by 0.8 for coal—as emissions from coal units amount to approximately

Results

Discussion

Conclusion