Staff memo: Better access to data on emissions is needed
News, Staff memo Banks have relatively small loans to the sectors that emit substantial amounts of greenhouse gases, so there is little to indicate that the introduction of a cost for emissions would have a major impact on Sweden's financial system. But the risks may be higher than the analysis shows as the sectors to which banks provide large loans may depend on sectors that emit large amounts of greenhouse gases. To analyse how much the risks would increase, there is a need for better access to data on emissions regarding both companies and value chains.
In a new staff memo, authors Mattias Danielsson, Lukas Guan Hallquist and Jakob Winstrand have analysed how a cost of emissions could affect the profitability of Swedish companies. They also analysed how this in turn could affect banks' credit risks. The authors find that there is a low risk of the banking sector having to make significant provisions for credit losses if companies had to pay for their production emissions.
According to the method used by the authors, banks have only small exposures to high emitters, suggesting that they do not pose a clear risk to financial stability. However, there are a number of limitations to this method, which are important to take into account before drawing any definitive conclusions. What these limitations have in common is that they can largely be addressed through better access to data.
Moreover, a cost for emissions is only one of many climate risks that can put pressure on the financial system. The analysis in the staff memo does not capture other types of transition risks, or risks associated with floods, landslides, fires and the like that will increase due to climate change.
Authors: Mattias Danielsson, Lukas Guan Hallquist and Jakob Winstrand, all working in the Financial Stability Department
Staff memo
A staff memo provides members of the Riksbank's staff with the opportunity to publish advanced analyses of relevant issues. It is a publication for civil servants that is free of policy conclusions and individual standpoints on current policy issues. Publication is approved by the appropriate Head of Department. The opinions expressed in staff memos are those of the authors and are not to be seen as the Riksbank's standpoint.