Climate-related risks materialise at different time horizons
Published: 12 April 2022
Climate-related financial risks can materialise in the short, medium and long term. The climate-related financial risk is most likely to materialise in the longer term than the non-climate-related financial risks. A typical time horizon when planning to manage traditional financial risks is 3–5 years, while climate-related financial risks are likely to materialise somewhat further ahead than that. Consideration of the time horizon is therefore something that should be included when calculating the carbon footprint. This can be done by taking into account the interest rate risk (duration) or the remaining time to maturity of the bond holdings. If a bond has a longer duration/maturity, the likelihood of a climate risk materialising during the term of the bond increases and thus has financial consequences for the investor.
Economic Commentary
NO. 4 2022, 12 April
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