Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/226822 
Year of Publication: 
2020
Series/Report no.: 
DIW Discussion Papers No. 1910
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
A range of studies has analysed how climate-related risks can impact financial markets, focusing on equity and corporate bond holdings. This article takes a closer look at transition risks and opportunities in residential mortgages. Mortgage loans are important from a financial perspective due to their large share in banks' assets and their long credit lifetime, and from a climate perspective due to their large share in fossil fuel consumption. The analysis combines data on the energy-performance of buildings with financial data on mortgages for Germany and identifies two risk drivers - a carbon price and a performance standard. The scenario analysis shows that expected credit loss can be substantially higher for a "brown" portfolio compared to a "green" portfolio. Taking climate policy into account in risk management and strategy can reduce the transition risk and open up new lending opportunities. Financial regulation can promote such behaviour.
Subjects: 
Mortgages
Residential Buildings
Carbon Risks
Transition Risks
Valuation
Climate Policy Scenarios
Policy and Regulation
JEL: 
G21
Q48
Q56
Q58
R38
Document Type: 
Working Paper

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