Tuesday, July 23, 2024

BdE and CNMV urge measures against climate risks

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The Bank of Spain, the CNMV and the General Directorate of Insurance and Pensions Funds stress that it is necessary to take measures to ensure an orderly environmental transition. It is one of the conclusions of the first joint analysis of climate change risks to the Spanish financial system.

Three main conclusions emerge from the document. First, it is necessary to complete the transition towards a sustainable economy because inaction will lead to a global warming planet scenario. Absence of transitional measures inEnergy combined with the increased frequency and intensity of extreme weather events that could occur would cause significant losses. Among other things, through a decrease in GDP growth, a deterioration in the solvency of financial entities, an increase in the cost of credit, or a decline.

Three main conclusions emerge from the document. First, it is necessary to complete the transition towards a sustainable economy because inaction will lead to a global warming planet scenario. Absence of transitional measures inEnergy combined with the increased frequency and intensity of extreme weather events that could occur would cause significant losses. Among others, through a decline in GDP growth, a deterioration in the solvency of financial entities, an increase in the cost of credit, or a decline in the value of assets.

Second, to achieve decarbonisation of the economy, the optimal alternative is a gradual and predictable transition, compared to a scenario in which measures are taken in a delayed and disorganized manner. The transition will entail short-term adjustment, shifting the cost of transition actions to exporters and encouraging the gradual decarbonisation of production processes and spending patterns. Specifically, inaction on climate change could lead to a level of GDP in 2070 that is about 50 percentage points lower than in the orderly transition scenario.

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Reallocate resources

Third, transitional measures must be accompanied by mechanisms to mitigate their impact on the reallocation of resources between sectors and between companies, as well as on the most vulnerable households. The impact will be more pronounced in sectors that rely on fossil fuels and have higher emissions, as well as in households with relatively higher energy spending.

In addition, the report analyzes the consequences of severe droughts and heatwaves on the banking sector.

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