Tribune. On the eve of the opening of COP26 (October 31-November 12, 2021), the European Central Bank (ECB) published on September 22, 2021, the results of its climate risk resilience study (climate stress test) in Europe by 2050, recognizing that “Climate change is a major source of systemic risk” for European economies.
In addition to the composition of an impressive statistical base of four million companies and 1,600 banks, this study is part of a new generation of climate stress tests that go beyond previous studies. Until now, they have only concerned “Transition risks”, i.e. the economic costs induced by policies aimed at “Decarbonize” the economy.
In this context, the risk was only considered through the financial losses of industries heavily dependent on fossil fuels (automobile, oil industry). In doing so, these first tests ignored the risks associated with climatic disasters (floods, droughts, loss of agricultural productivity, etc.).
European GDP 10% lower in 2100
The ECB study corrects this myopia: alongside the ” transition risks », It incorporates the existence of “Physical risks”, that is to say the financial damage caused by climatic disasters, doomed to increase drastically for lack of significant action on the climate front.
What is however appealing is the gap between a discourse imbued with seriousness in the presentation of the main conclusions and the concrete and quantified content of the ECB study. According to this, without strong measures, in 2100 European GDP could be 10% lower than it would be in an orderly transition scenario.
If no policy to combat climate change were implemented, a median European company would suffer a 40% loss in profitability and a 6% increase in its probability of default in 2050, compared to a situation in which the Paris agreement would be respected.
No European country in compliance with the climate objectives
A detailed reading of the study suggests a serious underestimation of the impacts of climate change on European economies, in connection with certain questionable hypotheses of the Network for Greening the Financial System (NGFS – network launched in 2017 and which brings together 89 central banks and supervisors) on which the ECB is based. A first series of questions concerns the realism of the scenarios selected.
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