Financial Risk Management and Climate Change Risk

This book presents recent studies concerning: (1) the challenges for financial risk management at the central bank posed by the growth of the balance sheet; and (2) the integration of climate risk and sustainability principles into the investment policy. In 2022, shortly after the Eurosystem ended net asset purchases under its quantitative easing programmes, the risk was approximately equal to less than half of the value measured at the peak of the sovereign debt crisis in 2012, notwithstanding the threefold increase in the monetary policy exposure. This shows the effectiveness of the Outright Monetary Transactions (OMT) Programme and the Pandemic Emergency Purchase Programme (PEPP) in quelling market turmoil, thereby reducing the Eurosystem’s own risk. The central bank community has intensified the efforts towards environmental sustainability and the fight to climate change in several directions, as shown in 2017 by the establishment of the Network for Greening the Financial System (NGFS). The book presents the key measures of environmental and climate-related risks for sovereign issuers and corporate issuers, respectively. Although the availability of coherent and comparable indicators is incomplete, investors may to a large extent measure and manage the portfolio climate risks by employing public information yet to be fully exploited.