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What is the likely impact of climate change on the banking sector? Will those stress tests on climate rechannel the investments to a more sustainable future?

Wats, Charles
(2023)

Files

Wats_12731800_2023.pdf
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Details

Supervisors
Desmet, Carlos
Faculty
Louvain School of Management
Degree label
Master [120] : ingénieur de gestion, à finalité spécialisée
Abstract
The aim of this study is to evaluate the climate stress tests introduced by the banking regulatory authorities. More specifically, we will analyze the advantages and disadvantages of these tests and assess their impact on banks' credit portfolio investment strategies. This master thesis is divided into 2 parts: first, the literature review will deal with the information available in the scientific literature regarding climate stress tests. We will look at what is in place in different economic zones such as the European Union, the United Kingdom and the United States of America. We will then look at the advantages and limitations of climate stress tests, and finally at their impact on banks' lending policies. This will be followed by the empirical part, in which we will carry out a qualitative and a quantitative analysis. The qualitative analysis will consist of interviews with specialists in the sector, during which they will discuss their expectations regarding climate stress tests, their limitations and the solutions that could improve them. In the quantitative part, we will analyze the evolution of the green loans offered by the banks over time to see whether climate stress tests have had an impact on the banks' investment strategies. The results of this thesis have shown that climate stress tests are new ways of assessing and managing climatic risks. However, they still need to be developed, as they are still too limited by the lack of data and modelling issues. This will improve in the future, thanks to the work of the various stakeholders. We can also add that these climate stress tests have an impact on the investment strategies of banks, making them aware of the importance of climate risks and thus modifying their lending portfolios towards more sustainable projects.