Climate Transition Risk in Morocco: Financial Implications of SDGs for the Stock Market

Objective: This study evaluates climate transition risks in Morocco, focusing on the energy sector under the climate actions outlined by the Sustainable Development Goals (SDGs). It aims to understand the financial implications of climate transition risk in the Moroccan stock market. Theoretical Framework: The study builds on the frameworks of transition risk assessment and integrated assessment models, employing a Poisson jump process to capture uncertainties in climate policy transitions. Method: A model-based approach is utilized, incorporating CO2 data, integrated assessment models, and six climate scenarios. The analysis uses Monte Carlo simulations to explore potential policy shifts and their impact on the Moroccan stock market. Results and Discussion: Findings reveal significant differences in the resilience of energy sub-sectors, with fossil fuel sectors facing substantial financial losses, while renewable sectors show greater resilience. A responsible investment strategy, prioritizing low-carbon sectors, demonstrates a significant reduction in financial risks compared to a capitalistic alternative. The study highlights the critical role of sustainable investment in mitigating climate transition risks. Research Implications: The results provide valuable insights for Moroccan financial entities, emphasizing the importance of aligning investments with SDGs to minimize financial risks. The findings also offer a foundation for developing climate risk assessment tools that support sustainable finance in Morocco. Originality/Value: This study is the first to focus on quantifying climate transition risk in the Moroccan stock market. It stands out for its innovative approach to modeling the uncertainty associated with climate policies, providing a more refined understanding of how policy shifts impact financial risks.