Financing the green transition and banking exposure to climate relevant sectors in Europe and in Portugal

Abstract

Climate change will undoubtedly pose risks to the financial system in general, and for the banking system in particular. Two main risks are being studied by organizations, regulators and central banks alike: transition risk and physical risk (Park and Kim, 2020).
Methodologies and frameworks are being developed to understand and control the risk that banks sustain in their balance sheets due to the climate transition. Institutions, such as the Network for Greening the Financial System (NGFS), the Financial Stability Board (FSB) and the European Banking Authority (EBA), are being active in the discussion on what these processes may look like and which information is important.
While data on banking exposure related to climate risk is still scarce, this dissertation uses the database from the EBA on exposure by NACE sectors to perform an analysis on which countries and banks are more exposed to the most emitting sectors (MES).
Based on data from EBA, it is estimated that 51% of the total EU banking exposure is related to the MES. Also, the emission intensity of each country’s economy (emission of CO2 equivalent per value added) is a good indication of the country’s banking system exposure to the MES. Sweden is the country less exposed to the MES (25%), as opposed to Romania (78%). Portugal’s share is 56%.
Regarding the Portuguese banking system, the sector that contributes the most to the MES exposure is the manufacturing sector (16,9%), followed by wholesale and retail trade (14,9%) and construction (11,3%).

Date of Award	19 Oct 2021
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Diana Bonfim (Supervisor)