In its first economy-wide climate stress test, the European Central Bank assessed the impact of climate change on four million companies and 2,000 banks in the bloc

Gurpreet Narwan writes on The Times website about the first economy-wide climate stress test by the ECB on companies and banks in the European Union.

European Central Bank environment stress test shows polluters at risk

Climate change poses “a major source of systemic risk” to the economy, the European Central Bank has warned after completing its latest stress tests.

In its first economy-wide climate stress test, the central bank assessed the impact of climate change on four million companies and 2,000 banks in the bloc.

The report concluded that EU member states were exposed to the physical risk of extreme weather events, such as floods and wildfires, as well as the financial costs of transitioning to a cleaner economy.

It said that climate change “represents a major source of systemic risk, particularly for banks with portfolios concentrated in certain economic sectors”.

Luis de Guindos, vice-president of the ECB, said in a blog post: “In the absence of further climate policies, the costs to companies arising from extreme weather events rise substantially, and greatly increase their probability of default.”

He added: “The biggest polluting firms, together with those in regions that are the most vulnerable to physical risk, could be exposed to up to four times as much climate risk as the average firm over the next 30 years.”

The full results of the stress tests will be published later this year.

The ECB compiled datasets on past and future emissions at company level, to map climate risks to individual businesses and banks over the next 30 years.

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