Cover IMF Working Papers
Buy Book in Print
Climate Transition Risk and Financial Stability in France
Author:
Rachel Lee
Search for other papers by Rachel Lee in
Current site
Google Scholar Close
,
Hugo Rojas-Romagosa
Search for other papers by Hugo Rojas-Romagosa in
Current site
Google Scholar Close
,
Iulia Ruxandra Teodoru
Search for other papers by Iulia Ruxandra Teodoru in
Current site
Google Scholar Close
, and
Xiaoxiao Zhang https://isni.org/isni/0000000404811396 International Monetary Fund

Search for other papers by Xiaoxiao Zhang in
Current site
Google Scholar Close
Series:
IMF Working Papers
Volume/Issue:
Volume 2024: Issue 144
Language:
English
Publication Date:
12 Jul 2024
DOI:
https://doi.org/10.5089/9798400280696.001
ISBN:
9798400280696
ISSN:
1018-5941
Pages:
31
Keywords:
Climate risk analysis; financial stability; ENVISAGE model; Fit-for-55; climate transition risk; climate scenario; scenario assumption; vulnerability data; Climate change; Greenhouse gas emissions; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (2.7 MB) Download Epub
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.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund