No need to worry? Estimating the exposure of the German banking sector to climate-related transition risks

Abstract

ABSTRACT Climate change poses several risks to the value of financial assets and financial stability. The study conducted in this paper focuses on the German banking sector and estimates its exposure to climate risks arising from a transition to a carbon-neutral economy. Our analysis identifies the energy, transportation, and manufacturing sectors as the most sensitive to transition risks. It shows that the German banking sector's direct exposure to climate transition risks is non-negligible. Moreover, it indicates that an amplified exposure to transition risks characterizes large private banks. These findings are comparable to other countries exposures and relevant to financial supervision and regulation, calling for increased engagement to assess, measure, and manage climate-related financial risks.