Market-based metrics for the systemic risk in climate transition

The transition to a low-carbon economy carries potential ramifications for financial stability. If unanticipated, changes in climate policy and regulation, technology, and consumer and investor preferences can cause sudden market price readjustments. Javier Ojea Ferreiro, Juan C. Reboredo, and Andrea Ugolini have developed an empirical setup to assess various sets of scenarios. They write that an early warning indicator is essential to help identify the exposure of financial institutions to different transition paths.