Investor panel on climate stress and the euro rate

BNR Nieuwsradio
Erasmus School of Economics

In a broadcast of BNR Nieuwsradio's Beleggerspanel, Mary Pieterse-Bloem, Professor of Financial Markets at Erasmus School of Economics, talks about the exchange rate of the euro and the first climate stress test ever carried out by the ECB.

The euro and the dollar have recently been worth the same for the first time in 20 years. From an investor's perspective, as Pieterse-Bloem explains, the consequence depends on where and how someone invests. If someone invests in euros, nothing changes, since the value of investments is expressed in euros and nothing changes in nominal terms. Indirectly, it depends on whether your portfolio is exposed to export-sensitive companies.

Dilemma for the ECB

The European Central Bank now has to make a difficult assessment: if it wants to narrow the interest rate differential between the euro and the dollar more quickly, this could lead to a recession. The ECB must make this assessment on the basis of several factors, such as inflation and the euro-dollar exchange rate. The ECB also looks at the Fed's interest rate policy, as the Fed is always ahead of the curve.

Climate stress test

The ECB has for the first time conducted a stress test looking at banks' sensitivities to climate-related calamities. According to Pieterse-Bloem, the banks have too little data to work with. For example, little is known about the footprint of many companies. There are two types of risk, Pieterse-Bloem explains: transition risk and physical risk. Transition risk includes the cost of greenhouse gas emissions, while physical risk refers, for example, to the risk of a building being located in an area at risk of flooding. Pieterse-Bloem expresses the hope that the ECB will make a strong plea in Brussels to ensure that companies collect and provide this information correctly.

Professor
More information

You can listen to the full broadcast of BNR Nieuwsradio, 12 July 2022, here.

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