Climate Transition Risk and Financial Stability in France

This study empirically investigates the impact of the climate transition on the French financial sector using a micro-macro approach to examine the long-term effects of climate mitigation and decarbonization policies on sectoral output and the effects on firm profitability and the likelihood of corp...

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Bibliographic Details
Main Author: Lee, Rachel
Other Authors: Rojas-Romagosa, Hugo, Ruxandra Teodoru, Iulia, Zhang, Xiaoxiao
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2024
Series:IMF Working Papers
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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300 |a 31 pages 
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653 |a Financial Institutions and Services: General 
653 |a Natural Disasters and Their Management 
653 |a Global Warming 
653 |a Environmental Economics: Government Policy 
653 |a Financial Markets and the Macroeconomy 
653 |a Climate 
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700 1 |a Ruxandra Teodoru, Iulia 
700 1 |a Zhang, Xiaoxiao 
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520 |a This study empirically investigates the impact of the climate transition on the French financial sector using a micro-macro approach to examine the long-term effects of climate mitigation and decarbonization policies on sectoral output and the effects on firm profitability and the likelihood of corporate defaults. We employ a recursive-dynamic, multi-regional, multi-sectoral computable general equilibrium (CGE) model to simulate the Fit-for-55 climate scenario and then integrate the sectoral output paths derived from the model into firm-level corporate balance sheets and risks. We then assess the extent of credit exposure of banks to energy-intensive sectors. Our findings indicate that, under the Fit-for-55 scenario, the mining, chemicals and manufacturing sectors might face notable increases in their probability of defaults, in turn creating pockets of vulnerabilities in some parts of the banking system depending on their exposure to these energy-intensive sectors. This highlights the importance for a timely and orderly transition, including integrating climate transition plans into the prudential framework