Systemic risk and climate change: a joint impact of transition and physical climate risks on the Polish banking sector

This study examines how climate change affects systemic risk in the Polish banking sector, focusing on both physical and transition climate risks. We argue that jointly integrating these risks providesa more accurate view of systemic vulnerability. Using a multidimensional framework, we extend the climate stability measure CRISK by incorporating temperature anomalies (physical risk) anda stranded assets index (transition risk). The dataset spans 2005–2023 and covers stock prices of eight systemically important banks, market shocks, and climate proxies tailored to the Polish context. Bank-specific sensitivity factors are estimated with a multivariate GJR-DCC-GARCH model on monthly data, capturing time-varying relationships between market and climate factors. The results show climate shocks significantly increase systemic risk, especially during crises such as Covid-19 and the war in Ukraine, with banks exposed to brown assets most fragile. The study is the first to jointly integrate both climate risks in Poland, offering a replicable methodology for other contexts.