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Disclosure of climate change risk in credit ratings

Author

Listed:
  • Walch, Florian
  • Breitenstein, Miriam
  • Ciummo, Stefania

Abstract

Climate change can be a source of financial risk. This paper examines how credit rating agencies accepted by the Eurosystem incorporate climate change risk in their credit ratings. It also analyses how rating agencies disclose their assessments of climate change risks to rating users. The paper develops an analytical framework to compare the agencies’ definitions, methodologies, assessment models, data usage and disclosure practices. The paper reveals large differences in methodologies and disclosure practices across rating agencies and asset classes. The authors identify three main areas for improvement with respect to climate-related disclosures. These areas concern the level of granularity of definitions of climate change risk, the transparency around models and methods used to estimate the exposure to climate change risk and the disclosure of the magnitude of the impact of material climate change risk on credit ratings. JEL Classification: E52, E58, G24, G32, Q54

Suggested Citation

  • Walch, Florian & Breitenstein, Miriam & Ciummo, Stefania, 2022. "Disclosure of climate change risk in credit ratings," Occasional Paper Series 303, European Central Bank.
    • Handle: RePEc:ecb:ecbops:2022303
    Note: 570737
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpops/ecb.op303~eaa6fe6583.en.pdf
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    Citations

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    Cited by:

    1. Grundmann, Justus & Silberbach, Anna & Auria, Laura, 2023. "Including carbon taxation risk in Deutsche Bundesbank's in-house credit assessment system (ICAS): An empirical analysis," Technical Papers 02/2023, Deutsche Bundesbank.
    2. Helena Redondo & Elisa Aracil, 2024. "Climate‐related credit risk: Rethinking the credit risk framework," Global Policy, London School of Economics and Political Science, vol. 15(S1), pages 21-33, March.
    3. Aubrechtova, Jana & Heinle, Elke & Porcel, Rafel Moyà & Torres, Boris Osorno & Piloiu, Anamaria & Queiroz, Ricardo & Silvonen, Torsti & Vaz Cruz, Lia, 2023. "Enhancing climate resilience of monetary policy implementation in the euro area," Occasional Paper Series 318, European Central Bank.

    More about this item

    Keywords

    climate change; credit rating agencies.; credit risk; monetary policy; risk management;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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