Climate risks and green finance

Climate change can have significant consequences for the economy and the financial sector. This makes it more difficult for us as central bankers to fulfill our core mandate, which is to safeguard stable prices and functioning financial markets. The financial sector must recognize and manage climate risks and OeNB supports these efforts. Also, green finance offers opportunities for markets and the environment.

Climate change is a global challenge. Its impact is already being felt now, but future generations will be even more affected. In the Paris Agreement on climate change, all countries in the world committed themselves to sharply reducing their emissions of greenhouse gases.

Climate change implies economic risks

For the economy, global warming implies physical climate risks, as represented, for example, by extreme weather events that may destroy crops as well as operating facilities and plants and reduce productivity. On the other hand, the transition to a low-carbon economy also implies economic risks. If many companies fail to adapt their business models in a timely manner and suffer losses, this can lead to turbulence on the financial markets. Both physical climate risks and transition risks influence inflation, particularly via energy prices, and economic growth.

Green finance may be good for the economy

Climate-friendly investments also open up opportunities for the economy. Green finance helps to fund the enormous investment needs for the energy transition through private and public capital. The market for sustainable financial products is currently growing rapidly. However, upon closer analysis, some green investment products do not reveal any real benefit for the climate and the environment. Such cases of greenwashing damage the efficiency of financial markets.

What’s the role of central banks in all this?

Faced with climate-related risks and opportunities, central banks and supervisory bodies have decided to act.

• The ECB has been taking climate-related risks into account in its monetary policy operations. Climate risks in the balance sheet of the Eurosystem, which also includes the OeNB, are assessed and managed. In economic analyses, we examine the macroeconomic effects of climate change and policy.
• As part of its supervisory activities, the OeNB checks whether credit institutions are paying sufficient attention to climate-related financial risks. Using climate stress tests, we estimate the effects of climate change on the financial creditworthiness of banks and the stability of the entire financial system. As a member of the international Network of Central Banks and Supervisors for Greening the Financial System (NGFS), we are working on the creation of climate scenarios, among other initiatives. In Austria, we support the Financial Market Authority and the responsible ministries in implementing European regulatory measures to finance sustainable growth. This also applies to national initiatives for green finance and resilience to climate risks.
• The OeNB has also practiced certified environmental management for more than 20 years. We are continually improving the carbon footprint and environmental balance of our operational activities and disclose climate-relevant key figures for our financial investments in accordance with Eurosystem standards. We are working to raise general climate awareness, close data gaps and seek dialog on climate change. Our commitment to market transparency promotes a more sustainable financial system.

Within our mandate, we strive to facilitate a smooth transition to a climate-neutral economy. But we are not a key player in climate policy. Democratically legitimized legislators need to take decisive measures, such as pricing greenhouse gases.

Videos

Publications

What do people in Austria think about green finance?
Andreas Breitenfellner, Heider Kariem. OeNB 2023

Green transition in CESEE: sectoral emissions and EU recovery plans
Andreas Breitenfellner, Matthias Lahnsteiner, Thomas Reininger. OeNB 2023

The effects of climate change on the natural rate of interest: a critical survey
Francesco Paolo Mongelli, Wolfgang Pointner, Jan Willem van den End. ECB 2022

What is the impact of carbon pricing on inflation in Austria?
Andreas Breitenfellner, Friedrich Fritzer, Doris Prammer, Fabio Rumler, Mirjam Salish. OeNB 2022

The impact of climate change on monetary policy
Andreas Breitenfellner, Wolfgang Pointner. OeNB 2021

OeNB climate risk stress test – modeling a carbon price shock for the Austrian banking sector
Martin Guth, Jannika Hesse, Csilla Königswieser, Gerald Krenn, Christian Lipp, Benjamin Neudorfer, Martin Schneider, Philipp Weiss. OeNB 2021

Climate protection: state of play, division of labor, steps forward
Robert Holzmann. OeNB 2021

Green finance – opportunities for the Austrian financial sector
Andreas Breitenfellner, Susanne Hasenhüttl, Georg Lehmann, Andreas Tschulik. OeNB 2020