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Climate Change and the Irish Financial System

Author

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  • Lane, Philip R.

    (Central Bank of Ireland)

Abstract

In this Economic Letter, I describe the challenges posed by climate change for the Irish financial system. An increase in the frequency of severe weather events has implications for macroeconomic outcomes, asset prices, house prices, credit risks and the cost and coverage of insurance contracts. In addition, the necessary transition to a low-carbon economy (supported by a phased schedule of increasing carbon taxes) requires considerable investment by households, firms and the government. If the pace of transition is too slow, a sharper adjustment will be ultimately required, posing macroeconomic and financial stability risks. As the macroprudential authority, the Central Bank will need to ensure that these financial stability risks are contained by improving the climate resilience of the financial system. As the prudential and conduct regulator, the Central Bank also has a lead role in ensuring that financial firms incorporate climate change into strategic and financial plans, while ensuring that consumers have sufficient information to navigate the financial risks posed by climate change.

Suggested Citation

  • Lane, Philip R., 2019. "Climate Change and the Irish Financial System," Economic Letters 1/EL/19, Central Bank of Ireland.
    • Handle: RePEc:cbi:ecolet:1/el/19
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    References listed on IDEAS

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    Cited by:

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    2. Clara I. González & Soledad Núñez, 2019. "Mercados, entidades financieras y bancos centrales ante el cambio climático: retos y oportunidades," Working Papers 2019-06, FEDEA.
    3. Francesco Caloia & David-Jan Jansen, 2021. "Flood risk and financial stability: Evidence from a stress test for the Netherlands," Working Papers 730, DNB.
    4. Talam, Camilla C. & Maru, Lucy, 2023. "The greening of Kenya's banking sector: Macro-financial stability implications of a low carbon transition," KBA Centre for Research on Financial Markets and Policy Working Paper Series 65, Kenya Bankers Association (KBA).
    5. Signe Krogstrup & William Oman, 2019. "Macroeconomic and Financial Policies for Climate Change Mitigation: A Review of the Literature," IMF Working Papers 2019/185, International Monetary Fund.
    6. Vermeulen, Robert & Schets, Edo & Lohuis, Melanie & Kölbl, Barbara & Jansen, David-Jan & Heeringa, Willem, 2021. "The heat is on: A framework for measuring financial stress under disruptive energy transition scenarios," Ecological Economics, Elsevier, vol. 190(C).
    7. D'Orazio, Paola & Hertel, Tobias & Kasbrink, Fynn, 2022. "No need to worry? Estimating the exposure of the German banking sector to climate-related transition risks," Ruhr Economic Papers 946, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    8. Boneva, Lena & Ferrucci, Gianluigi & Mongelli, Francesco Paolo, 2021. "To be or not to be “green”: how can monetary policy react to climate change?," Occasional Paper Series 285, European Central Bank.
    9. D’Orazio, Paola & Popoyan, Lilit, 2023. "Do monetary policy mandates and financial stability governance structures matter for the adoption of climate-related financial policies?," International Economics, Elsevier, vol. 173(C), pages 284-295.
    10. Andersson, Malin & Baccianti, Claudio & Morgan, Julian, 2020. "Climate change and the macro economy," Occasional Paper Series 243, European Central Bank.
    11. Paola D'Orazio & Lilit Popoyan, 2020. "Taking up the climate change challenge: a new perspective on central banking," LEM Papers Series 2020/19, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    12. Magdalena Ziolo & Beata Zofia Filipiak & Iwona Bąk & Katarzyna Cheba, 2019. "How to Design More Sustainable Financial Systems: The Roles of Environmental, Social, and Governance Factors in the Decision-Making Process," Sustainability, MDPI, vol. 11(20), pages 1-34, October.

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