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Bank of Spain sees moderate immediate risk to banks from climate policies
Global Banking & Finance Review®
Company
By Jesús Aguado
MADRID (Reuters) – Spain’s transition to cleaner energy could bring more notable risks to sectors with higher CO2 emissions, such as transport, manufacturing and agriculture, though any impact on banks would be moderate in the short run, the Bank of Spain said.
In an analysis of how increasing prices of CO2 emission rights can affect the banking sector, the central bank said on Wednesday that, on average, they would have a moderate impact on the credit quality of corporate loans.
However, if physical climate change risks, such as droughts and wildfires, materialise strongly, that would raise the long-term likelihood of default for some households and firms, it said.
The Bank of Spain added that physical and transitional risks faced by banks could pose a threat to financial stability, requiring a “decisive” response from central banks.
At a time when European leaders are working on plans to accelerate the bloc’s green transition, Bank of Spain chief economist Angel Gavilan also said there was a need to create internationally comparable standards to pursue this goal.
He added that European plans to reduce their reliance on Russian energy after Moscow’s invasion of Ukraine were positive in the medium term, although they would hurt in the short run.
Without providing further details, Gavilan said the energy transition risk was expected to be inflationary in the short term.
Having included climate and environmental risks in its supervisory priorities for 2022-24, the European Central Bank is carrying out several climate-related supervisory activities this year, including its first ever climate risk stress test.
(Reporting by Jesús Aguado; additional reporting by Emma Pinedo; editing by Andrei Khalip)
Climate change refers to significant changes in global temperatures and weather patterns over time, primarily driven by human activities such as burning fossil fuels, deforestation, and industrial processes.
Financial stability is a condition where the financial system operates effectively, allowing institutions to manage risks, maintain confidence, and absorb shocks without significant disruptions.
Risk management involves identifying, assessing, and prioritizing risks followed by coordinated efforts to minimize, monitor, and control the probability or impact of unfortunate events.
An investment portfolio is a collection of financial assets such as stocks, bonds, and other securities held by an investor to achieve specific financial goals.
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