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Taxonomy alignment and transition risk: a country-level approach

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Abstract

When firm-level information is not available, the greenness of financial portfolios, in terms of alignment to the EU Taxonomy, and their exposure to climate-related transition risk need to be stimated with a top-down approach. We improve the accuracy of available estimates by providing country-specific coefficients for both dimensions, based on homogeneous definitions of greenness and transition risk across countries. An application on confidential data from the European Central Bank shows that the exposure to transition risk of less regulated financial institutions has more than tripled from 2014 to 2023. Moreover, we show that the levels of Taxonomy alignment and transition risk exposure are largely heterogeneous across countries and sectors.

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  • Alessi, Lucia & Battiston, Stefano, 2023. "Taxonomy alignment and transition risk: a country-level approach," JRC Working Papers in Economics and Finance 2023-12, Joint Research Centre, European Commission.
    • Handle: RePEc:jrs:wpaper:202312
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    File URL: https://publications.jrc.ec.europa.eu/repository/handle/JRC135889
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    Keywords

    greenness; climate-related transition risk; climate-related financial disclosures; EU Taxonomy; green financial flows;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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