Two sides of the same coin: Green Taxonomy alignment versus (2024)

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Abstract

We develop the first top-down method to estimate the greenness of financial portfolios, in terms of alignment to the EU Taxonomy for sustainable activities. We also develop a method to estimate, at the same time, the portfolio exposure to climate transition risk. We provide sector-level, standardized and transparent coefficients for both estimates, based on definitions of greenness and transition risk that are applicable across countries. We analyse the portfolios of Euro Area investors in 2020, based on the confidential Securities Holdings Statistics of the European Central Bank. We find that, overall, the greenness of Euro Area investors' portfolios is lower than their exposure to transition risk (1.3% vs. 5.5%). Across financial institutions, we estimate greenness and exposure to transition risk, respectively, at 1.4% and 6.1% for investment funds, at 0.3% and 1.7% for banks and at 1.2% and 5.0% for insurers. Our analysis also shows that investors with large amounts invested in green activities can have at the same time large exposures to transition risk.

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Cited by:

1. Ricardo Crisostomo, 2022. "Measuring Transition Risk in Investment Funds,"Papers 2210.15329, arXiv.org, revised Dec 2022.
   • Ricardo Crisóstomo, 2023. "Measuring Transition Risk in Investment Funds,"CNMV Working Papers CNMV Working Papers no. 8, CNMV- Spanish Securities Markets Commission - Research and Statistics Department.
2. Dafermos, Yannis & Nikolaidi, Maria, 2022. "Greening capital requirements,"Greenwich Papers in Political Economy 37779, University of Greenwich, Greenwich Political Economy Research Centre.
   • Dafermos, Yannis & van Lerven, Frank & Nikolaidi, Maria, 2022. "Greening capital requirements,"LSE Research Online Documents on Economics 116946, London School of Economics and Political Science, LSE Library.

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More about this item

Keywords

greenness; climate transition risk; climate-related financial disclosures; EU Taxonomy; green financial flows;
All these keywords.

JEL classification:

• G2 - Financial Economics - - Financial Institutions and Services
• G3 - Financial Economics - - Corporate Finance and Governance
• Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

NEP fields

This paper has been announced in the following NEP Reports:

• NEP-CWA-2022-02-21 (Central and Western Asia)
• NEP-EEC-2022-02-21 (European Economics)
• NEP-ENE-2022-02-21 (Energy Economics)
• NEP-ENV-2022-02-21 (Environmental Economics)

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