On 6 September 2023, the European Central Bank (ECB) published Occasional Paper No 328 – The road to Paris: stress testing the transition towards a net-zero economy.

The ECB states that this Occasional Paper contributes to the field of climate stress testing by introducing the following three key innovations:

• The design of three short-term transition scenarios that combine the transition paths developed by the Network for Greening the Financial System with macroeconomic projections that account for the latest energy-related developments.
• The introduction of granular sectoral dynamics and energy-specific considerations by country relevant to transition risk.
• A comprehensive analysis of the impact of transition risk on the euro area private sector and on the financial system, using a granular dataset that combines climate, energy-related and financial information for millions of firms within the euro area credit register and securities database, and country-level data on households.

The results of this exercise demonstrate that, acting immediately and decisively would provide significant benefits for the euro area and economy and financial system, not only by maintaining the optimal net-zero emissions path (and therefore limiting the physical impact of climate change), but also by limiting financial risk.