The concept of climate risk and its impact

Speaker:  Ewa Dziwok - University of Katowice
  Thursday, May 29, 2025 at 12:00 PM

Climate risk, which includes both physical risks from environmental changes and transition risks linked to the shift towards a low-carbon economy, has become a critical component in discussions of systemic risk. The effects of climate change were further amplified by the COVID-19 pandemic, accelerating the inclusion of climate risk in systemic risk measurement processes (Jung et al., 2023).


To address these challenges, we propose viewing systemic risk as a multidimensional concept that requires a comprehensive and nuanced approach to measurement. By including a broader spectrum of external risks that can contribute to systemic events – such as market (equity) shocks, climate-related risks and interbank liquidity dynamics, this approach provides an alternative tool for monitoring and managing complex financial stability risks at the systemic level. Importantly, we combine transition risk with physical risk, in the assessment of systemic climate risk. The inclusion of climate risk is particularly important as it represents an often underestimated and growing dimension of systemic risk with significant economic consequences.


In the research, we apply econometric methods, including the simulation of the beta risk factor for several distinct exogenous shocks and its integration into a granular fragility measure of systemic risk. Based on these simulations, we construct a composite multidimensional measure of systemic risk. Subsequently, we apply our methodology to empirical data, using a sample of assets.


This research contributes to the existing literature by offering a universal framework for assessing systemic risk that aggregates multiple exogenous factors, particularly emphasizing the often-overlooked role of climate risk. Our results highlight the need for sophisticated, multidimensional analyses of systemic risk to enhance the resilience of financial systems against diverse shocks.


Programme Director
Cecilia Mancini

External reference
Publication date
December 18, 2024

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