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How to integrate climate risk into the risk taxonomy and link it to the regulatory capital?

Picron, Maxime
(2023)

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Picron285317002023.pdf
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Details

Supervisors
Ruben Olieslagers
Faculty
Louvain School of Management
Degree label
Master [120] : ingénieur de gestion, à finalité spécialisée
Abstract
The impact of climate change is increasingly being witnessed by society. The challenge of taking climate risk into account in the financial system is becoming crucial to achieve an effective, sustainable and fair transition for all. In this thesis, we delve into the unique attributes of climate risk that set it apart from traditional financial risks. This examination leads to a particular integration of climate risk within the taxonomy and risk management processes. This is followed by the integration of climate risk into the regulatory capital and bank supervision set today, but also to proposals outside the current regulatory framework, which add new perspectives of this integration. Finally, we will empirically observe the impact of the integration of climate risk into Basel's Internal Ratings-Based approach for credit risk, being the so-called Asymptotic Single Risk Factor (ASRF) model, with its potential use in the matter and limitations.