Irene Monasterolo

• PhD agri-food economics
• Professor (Assistant) at Vienna University of Economics and Business

Disruptions in global food and energy trade can trigger cascading socio-economic losses. Financial markets can amplify such losses and generate systemic cross-sectoral effects, e.g. food insecurity. Our methodology links the real economy and financial markets to quantify cascading impacts across sectors and regions and to capture amplification effe...

There is growing concern about the potential impacts of climate change on financial stability but little quantitative evidence available on the potential magnitude of financial risks induced by climate extremes. Here we provide a forward-looking assessment of the impacts of floods, storms, and wildfires on a universe of securities representative of...

Europe faces a large climate investment gap. To fill this gap, we propose the joint issuance of European climate bonds. These bonds would be funded by selling greenhouse gas emission allowances through the Emissions Trading System, extended to cover all sectors. Access to the resulting funds would be conditional on countries’ performance in impleme...

Climate physical risk assessment is crucial to inform adaptation policies and finance. However, science-based and transparent solutions to assess climate physical risks are limited, compounding the adaptation gap. This is a main limitation to fill the adaptation gap. We provide a methodology that quantifies physical risks on geolocalized productive...

Disruptions in global food and energy trade can trigger cascading socio-economic losses. Financial markets can amplify such losses and generate systemic cross- sectoral effects, e.g. on food insecurity. Our novel methodology links the real economy and financial markets to quantify such cascading losses and to capture amplification effects by financ...

Investors' appetite for green finance increased considerably in particular after the Paris Agreement. However, the lack of a standardized definition of green and non-green activities represents a main obstacle to understand under which conditions a green portfolio may outperform the market. We investigate to what extent the European stock market pr...

This Policy Brief provides an analysis and discussion of the main characteristics and limitations of the climate mitigation scenarios co-developed by the Central Banks and Financial Regulators' Network for Greening the Financial System (NGFS) for climate-financial risk assessment. Our analysis focuses on the following key elements: key uncertaintie...

Conceptual underpinnings of the NGFS climate scenarios and proposals for reform (2023)

Is climate change a financial risk that financial institutions need to worry about? Despite the rapid increase in climate financing and the rise of the dominant discourse on the importance of climate change and environmental, social and corporate governance (ESG) criteria, financial markets do not seem to show much sensitivity to the increasing cli...

There is an urgent need to raise awareness of the risks for generalizing 'flood' within the development of new risk assessment framework and adaptation strategies, and further outline opportunities for ensuring current and future multiform flood risk can be both assessed and reduced in particular for the most vulnerable populations. This requires e...

The authors study how greenness can be combined with other investment criteria to construct sets of corporate bonds portfolios with decreasing exposure to climate transition risk. They apply the methodology to the European Central Bank’s asset purchase program. They define a weaker market neutrality principle as investing proportionally to the bond...

The role of climate finance policies and instruments in scaling up and derisking low-carbon investments has received growing research attention. However, financial actors’ reaction to climate finance initiatives, and their implications on decarbonization of the economy and on inequality, has not been assessed yet. Our manuscript contributes to addr...

COVID-19 has revealed how challenging it is to manage global, systemic and compounding crises. Like COVID-19, climate change impacts, and maladaptive responses to them, have potential to disrupt societies at multiple scales via networks of trade, finance, mobility and communication, and to impact hardest on the most vulnerable. However, these compl...

The International Monetary Fund (IMF) has been tasked with quickly devising a climate change strategy that helps its members meet collective climate change and development goals while maintaining financial stability. In this paper, we develop an analytical framework of the ‘macro-critical’ nature of climate change and use that framework to examine...

As the impacts of climate change begin to take hold, increased attention is being paid to the consequences that might occur remotely from the location of the initial climatic impact, where impacts and responses are transmitted across one or more borders. As an economy that is highly connected to other regions and countries of the world, the Europea...

The COVID-19 pandemic is generating the largest shock in the global economy since 1929. Although the pandemic has been unprecedented in scale and type, such complex, compounding shocks are not uncommon and are more likely in our modern, interconnected world. Our ability to assess and anticipate compounding risks is limited. Here, we propose a frame...

Natural disasters negatively impact regions and exacerbate socioeconomic vulnerabilities. While the direct impacts of natural disasters are well understood, the channels through which these shocks spread to non-affected regions, still represents an open research question. In this paper we propose modelling socioeconomic systems as spatially-explici...

We develop a Stock-Flow Consistent model to assess the impact of COVID-19 and climate change, both individually and compounding, in the economy and finance. Then, we study the interplay between banks lending decisions and government policy effectiveness in the economic recovery in Mexico. By embedding financial actors and the credit market, and by...

Reaching the UK net-zero emissions target translates into substantial investment requirements into low-carbon energy infrastructure. However, investors are currently not investing sufficiently in renewable energy capacity, leading to the so-called green finance gap. Current energy-economy models generally do not reveal the macroeconomic implication...

This session will introduce the theme of the day. It will engage with leading experts in climate finance from academia, central banks and financial regulators in a stock-taking exercise to critically discuss international examples of progress in climate financial risk assessment and the challenges associated which are currently faced by investors a...

Les deux économistes Stefano Battiston et Irene Monasterolo observent, dans une tribune au « Monde », que les anticipations des investisseurs peuvent aussi aller contre l’objectif de limitation du réchauffement climatique

The financial system-the ecosystem of investors (e.g., banks, investment funds, insurance), markets, and instruments-is often considered to play an enabling role in climate mitigation pathways to a low-carbon transition (1). But it can also have a hampering role, e.g., if investors' perceptions of low risk from a missed transition and low opportuni...

El Fondo Monetario Internacional (FMI) necesita diseñar rápidamente una estrategia de cambio climático que ayude a sus miembros a cumplir sus objetivos colectivos de cambio climático y desarrollo. En este breve informe se describen los aspectos macrocríticos del cambio climático que deberían incorporarse a la actividad de supervisión del FMI y se e...

A successful low-carbon transition requires the introduction of policies aimed at aligning investments to the climate and sustainability targets. In this regard, a global Carbon Tax (CT) and a revision of the microprudential banking framework via a Green Supporting Factor (GSF) have been advocated but two main knowledge gaps remain. First, the unde...

Climate change has been recently recognised as a new source of risk for the financial system. Over the last years, several central banks and financial supervisors have recommended that investors and financial institutions need to assess their exposure to climate-related financial risks. Central banks and financial supervisors have also started desi...

Joint CASCADES–RECEIPT policy brief

Climate change poses several risks to the value of financial assets and to financial stability. In this study, we estimate the exposure of the Austrian banking sector to climate risks that might arise from a disorderly transition to a carbon-neutral economy. To this end, we identify climate policy-relevant sectors (CPRSs), i.e. sectors which are pa...

Well-known academic and non-academic institutions call for a new approach in economics able to capture features of modern economies including, but not limited to, complexity, non-equilibrium and uncertainty. In this paper, we provide a systematic review of ecological macroeconomic models that are suitable for the investigation of low-carbon energy...

The role of finance in the low-carbon transition, as well as the deep uncertainty and endogeneity of climate finance risk, are currently neglected by climate economic models. This leads to a false sense of control in terms of risks and opportunities associated with the low-carbon transition. Further, it prevents people from understanding under whic...

The financial system could help achieve the global climate targets by aligning investments to sustainability. However, investors are largely exposed to carbon-intensive assets that could become stranded, thus delaying the low-carbon transition and bringing new sources of risk for financial stability, i.e., climate-related financial risks. Here, we...

Investments are largely allocated to sectors of economic activities that are at odds with the climate targets, thus exposing countries' economies and investors' portfolios to the risk of carbon stranded assets. In this context, a main knowledge gap is represented by the poor understanding of financial actors' perception of the climate-related finan...

Pandemics are disruptive events that have profound consequences for society and the economy. This volume aims to present an analysis of the economic impact of COVID-19 and its likely consequences for our future. This is achieved by drawing from the expertise of authors who specialise in a wide range of fields including fiscal and monetary policy, b...

Barriers and opportunities to align finance to sustainability Lessons learned from knowledge co-production in Austria RiskFinPorto – Policy Brief

Recent political events in the European Union (EU) highlighted a growing dissatisfaction of citizens in several EU regions with the EU institutions’ management of socio-economic and financial challenges. This eventually led to a political legitimization crisis, whose drivers are partially shared among EU regions and partially area-specific. However...

The Joint Research Centre (JRC) of the European Commission and the European Banking Authority (EBA) organized a workshop on November 18-19 at the JRC in Ispra (Italy) on “Banking Regulation and Sustainability”. The joint JRC-EBA Workshop moved forward on the various challenges related to integrating sustainability into the EU banking regulation fra...

It is increasingly recognized that a transition to sustainable finance is crucial to scale up the low-carbon investments needed to achieve the global climate targets. A main barrier to portfolios' decarbonization is the lack of conclusive evidence on whether low-carbon investments add value to a portfolio, and on whether markets react to climate an...

It is increasingly recognized that a transition to sustainable finance is crucial to scale up the low-carbon investments needed to achieve the global climate targets. A main barrier to portfolios' decarbonization is the lack of conclusive evidence on whether low-carbon investments add value to a portfolio, and on whether markets react to climate an...

The assessment of the socio-economic and financial impacts of climate change represents a main source of uncertainty for policy makers and investors. However, traditional climate economics and financial risk models are not properly equipped to consider the characteristics of climate risks and the opportunities from climate-alignment, being constrai...

Do citizens show different patterns of European identification? Are the results driven by specific regional characteristics? Has Cohesion Policy an influence on EU citizens' identification? With the aim to answer these questions, we develop a novel probabilistic model that allows classification of citizens according to their different patterns of i...

In 1972, The Limits to Growth, using the World3 System Dynamics model, modeled for the first time the long-term risk of food security, which would emerge from the complex relation between capital and population growth within the limits of the planet. In this paper, we present a novel system dynamics model to explore the short-term dynamics of the f...

Assessing the short-term socioeconomic impacts of climate-led disasters on food trade networks requires new bottom-up models and vulnerability metrics rooted in complexity theory. Indeed, such shocks could generate cascading socioeconomic losses across the networks layers where emerging agents' responses could trigger tipping points. We contribute...

RiskFinPorto - Analysis of Carbon Risks in Financial Markets and Austrian Portfolios Leaving the bubble - lose portfolio risk in five easy steps

There is growing awareness that aligning the real economy to the climate and sustainability targets requires the introduction of stable policies. In this regard, a global Carbon Tax (CT)) and a revision of the microprudential banking framework via a Green Supporting Factor (GSF), have been advocated. However, our understanding of the conditions und...

Climate change is posing daunting challenges to our societies. Such challenges are increasingly recognized by policymakers, practitioners and academics. Indeed, to limit the negative impact of human activities on the climate, 193 governments signed, in December 2015, the “Paris Agreement” aimed at stabilizing global temperature on 2 °C above pre-in...

There is growing consensus on the fact that fossil fuel subsidies provided by governments in high-income countries represent a misalignment on emissions’ reduction with the global climate agenda. In addition, a discussion emerged on the negative socio-economic and environmental externalities associated with fossil fuel subsidies. Nevertheless, path...

The transition to sustainable finance is crucial to scale-up low-carbon investments and achieve the 2°C target. Nevertheless, most investors have not yet shifted their portfolios from carbon-intensive to low-carbon assets. One barrier is represented by the limited understanding of to what extent (if any) the market reacts to climate announcements b...

The role of development finance institutions in low‐income and emerging countries is fundamental to provide long‐term capital for investments in climate mitigation and adaptation. Nevertheless, development finance institutions still lack sound and transparent metrics to assess their projects' exposure to climate risks and their impact on global cli...

Existing approaches to assess the economic impact of climate policies tend to overlook the financial sector and to focus only on direct effects of policies on the specific institutional sector they target, neglecting possible feedbacks between sectors, thus, underestimating the overall policy effect. To fill in this gap, we develop a methodology ba...

Fiscal and monetary policies, as well as new financial instruments, could play a key role to meet the Paris Agreement. However, deep uncertainty characterizes their design and their potential effects on growth, financial and credit market stability, and inequality. We develop the EIRIN flow-of-funds behavioural model to simulate the introduction of...

Cuba is an ecological rarity in Latin America and the Caribbean region. Its complex political and economic history shows limited disturbances, extinctions, pollution, and resource depletion by legal or de facto measures. Vast mangroves, wetlands, and forests play key roles in protecting biodiversity and reducing risks of hazards caused or aggravate...

Market-based solutions to climate change are widely advocated by financial actors and policy makers in order to foster a smooth transition to a low-carbon economy. A first important limiting factor to this approach is widely recognized to be the imperfect information on investors’ portfolios’ exposure to climate-related risks. While better disclosu...

The relationship between the energy-food-water nexus and the climate is non-linear, multi-sectoral and time sensitive, incorporating aspects of complexity and risk in climate related decision-making. Current methods of analysis were not built to represent such a complex system and are insufficiently equipped to capture and understand positive and n...

Existing approaches to assess the economic impact of climate policies tend to overlook the financial sector and to focus only on direct effects of policies on the specific institutional sector they target, neglecting possible feedbacks between sectors, thus, underestimating the overall policy effect. To fill in this gap, we develop a methodology ba...

The multidimensionality and complexity of assuring food security in a sustainable and inclusive way requires us to think in systems. Yet, sector specific models or agricultural productivity models are not able by construction to represent the non-linearity and time-dependent nature of the relations underpinning the agri-food system. Two alternative...

The urgency of estimating the impact of climate risks on the �financial system is increasingly recognised among scholars and practitioners. However, traditional risk analysis is inadequate to deal with the intrinsic uncertainty of model estimates of the e�ffects of climate policies and calculations of expected losses/gains can be largely inaccurate...

Recently, the relation between macro-economic and financial stability and climate policy risk (e.g., the introduction of fast decarbonization policies) emerged as prominent concern on the climate policy agenda (Carney, 2015) and it is likely to gain further importance with the recently launched Task Force on Climate-Related Financial Disclosure by...

The nexus represents a multi-dimensional means of scientific enquiry which seeks to describe the complex and non-linear interactions between water, energy, food, with the climate, and further understand wider implications for society. These resources are fundamental for human life but are negatively affected by shocks such as climate change and cha...

To achieve the goal of the Paris Climate agreements, i.e. to limit global temperature increases to as close to 2 deg C above preindustrial levels as possible, the role of fiscal instruments is potentially very important. A global carbon tax, while not likely politically, would be one such instrument. There is great uncertainty about the design of a...