Green monetary and prudential policy and governance reforms are needed to mitigate the significant risks that would result from a disorderly transition to a low-carbon economy, according to this paper by Emanuele Campiglio and Rick van der Ploeg.
The report warns that the financial system could face huge costs due to the risks of stranded assets, defaults and a collapse in stock market value, both for financial and non financial firms. It finds that the effects of networks, contagion, and higher-round effects of stranding may exacerbate the problem.
Based on a survey of qualitative, empirical, modelling, policy and institutional research, the report concludes that green monetary and prudential policies could help to reduce transition risks, such as those designed to offer economic incentives to financial institutions investing in low-carbon firms.
This page was last updated October 22, 2021
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