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Sustainability Risks

Sustainability Risks

Context

The EU’s objective to achieve climate neutrality by 2050 fundamentally reshapes the economic and financial landscape. This objective is now combined within the European green deal with the necessity to address EU energy autonomy and competitiveness challenges. This context brings transition and physical risks to the forefront of policy and financial stability considerations. These risks are systemic, affecting households, firms, financial institutions and public finances across time horizons.

The orderly delivery of theses transitions requires setting the conditions for large-scale investment in sustainable projects.

Beyond physical climate risks, transition risks stem from regulatory change, technological disruption, shifts in consumer behaviour and the risk of stranded assets. Insufficient or delayed investment increases the likelihood of abrupt policy adjustments and disorderly transitions, with potential implications for economic and financial stability.

Managing these risks requires forward-looking policy and financial frameworks. Traditional risk assessment tools are ill-suited to capture long-term, uncertain and non-linear sustainability risks, calling for greater reliance on scenario analysis, climate stress testing and credible transition plans. High-quality and comparable sustainability disclosures are essential to support effective risk identification and mitigation across the economy, including for SMEs and mid-caps, which are both central to the transition and particularly exposed to its risks. Ultimately, an orderly and well-financed transition is not only a climate objective, but a prerequisite for limiting sustainability risks and preserving economic and financial stability.

Eurofi documents

Extracted from the main Eurofi publications (Regulatory Updates, Views Magazines and Conference Summaries)

Regulatory Update

Eurofi policy notes

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Summary

Session Summaries

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Views The Eurofi Magazine

Eurofi Views Magazine chapters

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Key contributions

Speech & interview

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