The houses most exposed to climatic phenomena such as floods are likely to lose almost half of their value, 45% to be precise, with consequences noted for banks exposed to the real estate sector.
He reports it to the news agency Bloomberg Fernando de la Mora, managing director of Alvarez & Marsal, a company that provides advice to banks by anticipating the scenarios of stress test of the ECB, which will be published this week, which try to understand how credit institutions will fare, also considering the policies of governments to combat climate change.
The new ECB tests are looming as one of the most detailed exercises on climate risk, and will also include the impact of elements such as higher emission prices or the impact of home energy efficiency on the mortgage market.
Homes, floods and droughts: countries most exposed
“What is most worrying are the physical risksSaid de la Mora, who is working with lenders to guide them through the requirements set out in the stress tests. Let’s take the case of the floods. A recent ECB study found that 22% of euro area banks have a high exposure to this risk, especially in Austria, the Netherlands, Germany and France, while fires represent a predominant threat in Spain and Italy.
For low-flood risk real estate assets, the ECB assumes a 5% decline in value, according to de la Mora. The central bank’s drought scenario, on the other hand, is “more manageable” and has an economic impact due to lower productivity. Only southern European countries experience severe GDP shocks in climate-related sectors, such as agriculture.
“The value of the long-term scenarios is not the precise number of provisions that banks will have to build, but the difference between these results,” continued the expert.
Consider mining, an industry closely associated with global warming. Companies in the sector would see theirs credit spreads increase by 42 basis points by 2050 assuming there is an orderly transition to a low-carbon world, but by nearly 350 basis points by 2030 in a disorderly scenario, de la Mora said. “The shock is really there in the short term,” he said.