Climate policies cause moderate immediate risk to banks

As per Central Bank, the rising CO2 emission rights pricing will have a moderate impact on the credit quality of corporate loans, based on an analysis of how they will affect the banking industry. This also brings notable risks to sectors with higher CO2 emissions, such as transport, manufacturing, and agriculture. 

  • According to the Bank of Spain, physical and transitional risks faced by banks could represent a threat to financial stability, necessitating a “decisive” reaction by central banks  
  • The European Central Bank is carrying out various climate-related supervisory operations this year, including its first-ever climate risk stress test 
  • Europe has also planned on reducing its reliance on Russian energy after its invasion of Ukraine 

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