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The central banking community increasingly acknowledges that climate change poses systemic threats to financial stability (Carney, 2015; NGFS, 2018, 2019). Two main types of risks are usually identified. First, physical risks refer to the financial losses that could result from the increase in frequency and severity of climate-related weather events and the effects of long-term changes in climate patterns. For instance, losses related to natural catastrophes have already been increasing over the past decades, and the majority of these losses is not ensured (IAIS, 2018). However, the worst impacts of climate change probably lie ahead of us (Lenton et al., 2019; Ripple et al., 2020) and could lead to catastrophic economic and financial outcomes (Weitzman, 2011, 2015). Second, transition risks relate to the financial impacts that could result from an abrupt or disorderly low-carbon transition, including sudden policy changes, technological breakthroughs or limitations, and shifts in individual preferences or social norms. In particular, if we are to meet ambitious climate targets (e.g. a maximum of 1.5°C or 2°C of global warming), a large fraction of proven reserves of fossil fuels cannot be extracted, thereby becoming “stranded assets” (McGlade and Elkins, 2015). A rapid and significant reassessment of the value of these assets could “spark a pro-cyclical crystallisation of losses and lead to a persistent tightening of financial conditions: a climate Minsky moment” (Carney, 2016, 2)…

English

Central banks increasingly acknowledge that climate change is a source of financial risks, which is likely to also impact their conduct of monetary policy. Against this backdrop, the aim of this paper is to explore one potential approach to factoring climate-related transition risks into a central bank’s collateral framework. Given the radical uncertainty associated with measuring such risks, this approach relies on so-called climate “alignment” methodologies, which enable to assess the consistency of eligible and pledged marketable assets with specific climate targets. Moreover, this paper proposes a “climate-hedging portfolio approach”: instead of seeking to “align” the collateral on an asset-by-asset basis, central banks could aim for “alignment”, in aggregate, of the collateral pools pledged by their counterparties with a given climate target. The rationale for this choice is that assessing climate-related risk at the pool level avoids the Eurosystem having to decide on which assets/issuers in the pools should be excluded or capped, and is therefore more compatible with a market neutrality approach. The numerical experiment using Eurosystem marketable criteria data suggests that, in aggregate, neither the Eurosystem eligible collateral universe nor the collateral pledged is “aligned” with the climate targets of the European Union. From this perspective, the Eurosystem marketable collateral can be considered to be exposed to climate-related transition risks. We discuss the potential practical implications of aiming to “align” collateral pools, and suggest avenues for further work.
JEL classification: D81, E52, E58, G32, Q54

  • monetary policy
  • collateral framework
  • climate change
  • risk and uncertainty
  • Eurosystem
Français

Risques climatiques et politique de collatéral des banques centrales : une expérience méthodologique

Les banques centrales reconnaissent de plus en plus que le changement climatique est une source de risques financiers et qu’il pourrait affecter la transmission et la mise en œuvre de la politique monétaire. Dans ce contexte, cet article explore une approche permettant d’intégrer les risques climatiques dans la politique de collatéral d’une banque centrale. Cette approche se base sur des méthodologies dites d’ « alignement » climatique, qui permettent d’estimer la cohérence des actifs éligibles et mobilisés dans le cadre du collatéral avec des objectifs climatiques. Plutôt que de chercher à évaluer l’ « alignement » de chaque actif, les banques centrales pourraient chercher à ce que les pools de collatéral mobilisés par chaque contrepartie soient compatibles avec des objectifs climatiques, cette approche étant plus compatible avec le principe de neutralité de marché. Notre analyse montre qu’en agrégé, le collatéral négociable éligible et mobilisé dans le cadre de l’Eurosystème n’est pas « aligné » avec les objectifs climatiques de l’UE, ce qui suggère qu’il est exposé aux risques de transition. Nous présentons quelques implications pratiques de nos résultats et suggérons des pistes pour de futures études.

Antoine Oustry
École Nationale des Ponts et Chaussées, Champs-sur-Marne, France
Ecole des ponts ParisTech, 6-8 Av. Blaise Pascal, 77420 Champs-sur-Marne
LIX, Ecole Polytechnique, Institut Polytechnique de Paris, Palaiseau, France
LIX CNRS, Ecole polytechnique, Institut polytechnique de Paris, 91128 Palaiseau
Bünyamin Erkan
Banque de France, Paris, France
Banque de France, 39 rue Croix des Petits-Champs, 75001 Paris
Romain Svartzman
Banque de France, Paris, France
Banque de France, 39 rue Croix des Petits-Champs, 75001 Paris
Pierre-François Weber
Banque de France, Paris, France
Banque de France, 39 rue Croix des Petits-Champs, 75001 Paris
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