Our colleague Leonarda Srdelić on October 2, 2024, was a quest in the show "Climate Challenge" on Croatian Radio – First programme, where she discussed the risks of climate change for the economy and financial system and their modelling. She shared insights from her papers on the macroeconomics and transitional risks of climate change.

The paper "Macroeconomics of climate change: a review of climate projections and impacts on the economy and financial system of Croatia" explores the physical risks of climate change. In the first part, regions within Croatia with varying exposure to climate risks are identified using geospatial data analysis from the Intergovernmental Panel on Climate Change (IPCC) and the Copernicus programme. This is the basis for the innovative application of IPCC climate projections in Croatia, offering important insights directly applicable to the financial sector. For instance, through geospatial risk analysis and georeferencing of assets, banks and other financial institutions can more precisely assess their asset exposure to these risks. The second part focuses on synthesizing findings on climate projections for Croatia, considering mechanisms through which climate change affects economic activity and financial stability. The paper contributes to the theoretical understanding of the links between climate change and macroeconomic variables and provides a framework for analysing the long-term economic effects of climate change. The research results can serve as a basis for developing national-level adaptation and mitigation strategies.

To identify sectors in Croatia and the Eurozone that are particularly sensitive to current and future EU measures to achieve climate neutrality, the paper "Transition risks of climate change: Analysis of greenhouse gas emissions in Croatia and the Eurozone" analyses data from the United Nations Framework Convention on Climate Change (UNFCCC) on anthropogenic greenhouse gas emissions by type of gas and economic sector over the past thirty years. To determine Croatia's position regarding greenhouse gas emissions, each member country's contributions to the Eurozone's total emissions and emissions per capita are calculated. Subsequently, data on real GDP trends and carbon emissions are compared to identify how successfully Croatia is decoupling economic growth from the demand for fossil fuels. Finally, emissions of greenhouse gases by type of gas and by economic and sub-economic sectors for Croatia and the Eurozone average are analysed. The goal is to identify high-emission sectors because the transition to a low-carbon economy will require emission reductions in these sectors, which could lead to financial losses for companies and banks exposed to these sectors. Similarly, as the economy shifts to low-emission economic growth, there can be changes in the value of assets and financial instruments associated with high-carbon sectors, which also poses a risk for investors and financial institutions. This paper represents the first comprehensive analysis of the transitional risks associated with greenhouse gas emission trends in Croatia. The research provides original insights into the specifics of the Croatian economy, analysing its positioning within the Eurozone in the context of decarbonisation and economic efficiency. Based on the analysis, it is clear that the sectors of Energy, Transport, and Industrial Processes are key in the context of sensitivity to EU climate policies. Conversely, the sector of Land Use, Land Use Change, and Forestry (LULUCF) provides unique opportunities for mitigating climate change through carbon storage activities, contributing to the achievement of climate neutrality.

"The effectiveness of climate change adaptation measures is of key importance because they can reduce climate risks even in climate projection scenarios that predict an increased number and intensity of natural disasters in the future," concludes Srdelić.