Emulating the Standard Initial Margin Model: initial margin forecasting with a stochastic cross-currency basis

Climate change poses several risks to the value of financial assets and to financial stability. In this study, we capture climate-related financial risks by exploring credit risk channels from a bank perspective. First, we estimate the exposure of the Polish banking sector to climate risks that may arise from a disorderly transition to a carbon-neutral economy. Then, we translate changes in climate-related variables into changes in banks’ balance-sheet losses.We provide empirical evidence of the heterogeneous effect of energy-related variables on the quality of loans in various sectors of the economy. Our results show that banks exposed to climate-policy-relevant sectors are more sensitive to changes in environmental risk drivers and are thus subject to a higher credit risk than those exposed to less carbon emitting sectors.