Sustainable Investing

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Financial decisions worldwide are increasingly influenced by the scarcity of resources, and the physical and transition risks associated with climate change. The extent of the environmental impact from climate change is still uncertain but the recent scientific evidence is increasingly worrisome and many governments are taking decisive steps in order to avert a catastrophe. The transition towards a low-carbon economy requires a broad array of financial instruments and innovations that will have far-reaching implications for markets, corporations, intermediaries, and investors.

As part of our effort to help investors and asset managers adequately deal with these new risk factors, EDHEC-Risk Institute has launched an ambitious programme that will explore the impact of climate change on asset prices and evaluate the impact of financial decisions on the fight against climate change. On June 9 2020, the EDHEC Business School joined the Global Research Alliance for Sustainable Finance and Investment (GRASFI), the global network for cutting-edge research on sustainable finance and investment. 

Implications of Climate Change on Asset Pricing and Investment Management

The main research goals of this research strand are to:

  1. 1) Identify the possible impacts of climate change (due to physical and transition risk) on economic output
  2. 2) Identify the possible impacts of climate change (due to physical and transition risk) on different asset classes and industrial sectors
  3. 3) Construct optimal climate-risk-aware portfolios and strategies
  4. 4) Estimate the ‘climate beta
  5. 5) Estimate the climate risk premium
  6. 6) Assess the channels through which climate risk (physical and transition) can affect the financial system and, as a consequence, the real economy
  7. 7) Develop internally coherent and financially grounded climate stress tests and scenario analyses 

 

The programme Implications of Climate Change on Asset Pricing and Investment Management is managed by Riccardo Rebonato, PhD, Professor of Finance at EDHEC Business School, and Scientific Director of EDHEC-Risk Climate Impact Institute. He is a specialist in interest rate risk modelling with applications to bond portfolio management and fixed-income derivatives pricing. He was previously Global Head of Rates and FX Research at PIMCO. He has published extensively on the use of Bayesian nets for stress testing and asset allocation. His past academic experience in the hard sciences (physics & nuclear engineering) is a unique asset in the adaptation of the existing IAMs to the task at hand.

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Impact of Finance on Climate Change Mitigation and Adaptation

Finance, understood as the ecosystems of financial actors, instruments and policies, is expected to play a key role in decarbonizing the global economy and achieving the Paris Agreement climate targets. However, finance could also hinder the low-carbon transition if it fails to integrate climate into its financial risk assessment and investment decisions.

In Video : What is a cascading risk related to climate?

The main focuses for this research strand will be on:

  1. 1) Methodologies for the asset-level assessment of physical and transition climate risks
  2. 2) The development and operationalization of taxonomies of green activities and carbon-stranded assets
  3. 3) The strengthening of climate scenarios for economic and financial risk assessment
  4. 4) The analysis of cascading climate, biodiversity and nature-related risks in the economy and finance
  5. 5) The compounding of climate, pandemic and sovereign risks, and their implications for fiscal and financial risk management
  6. 6) Green financial sector initiatives: potential mutual-benefits, implications for decarbonization and financial stability
  7. 7) Dynamic balance sheet assessment and climate stress test
  8. 8) The financial stability implications of climate change and the low-carbon transition
  9. 9) Interplay between climate policy credibility and investors’ climate sentiments
  10. 10) The role of green regulatory policies in shaping expectations, investment decisions and risk management

 

The programme Impact of Finance on Climate Change Mitigation and Adaptation is managed by Irene Monasterolo, PhD, Professor of Climate Finance at EDHEC Business School. She writes and researches on topics related to climate change and the financial system, including tail risk scenarios, climate stress test, and green finance policies and regulations. She has developed the climate stress test of the financial system and the EIRIN Stock-Flow Consistent model. Her research is published in leading journals such as Science. Prior to joining EDHEC, she held research positions at the Vienna University of Economics and Business, the International Institute for Applied Systems Analysis and Boston University. Irene also has extensive experience in mainstreaming research results into climate finance policy and risk management. She has collaborated with international and European leading financial institutions, including the World Bank, the European Central Bank, the G20, the European Insurance and Occupational Pension Authority. She is associate editor at Ecological Economics and research area leader for Environment-Economy Interactions at the EAEPE.


The Agency of Greenwashing

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Lessons from COVID-19 for managing transboundary climate risks and building resilience

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Andrew K.Ringsmuth, Ilona M.Otto, Bart van den Hurk, Glada Lahn, Christopher P.O.Reyer,Timothy R.Carter, Piotr Magnuszewski, Irene Monasterolo, Jeroen C.J.H.Aerts, Magnus Benzie, Emanuele Campiglio, Stefan Fronzek, Franziska Gaupp, Lukasz Jarzabek...


Climate risk and IMF surveillance policy: a baseline analysis

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Luma Ramos, Kevin P. Gallagher, Corinne Stephenson, Irene Monasterolo


Europe's cross-border trade, human security and financial connections: A climate risk perspective

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Christopher D.Westa, Emilie Stokeld, Emaan König, Hanne Knaepen, Piotr Magnuszenuele Campiglio, Simon Croft, Adrien Detges, Anja Duranovic, Adrianvon Jagow, Łukasz Jarząbeke, Christiwskie, Irene Monasterolo, Christopher P.O.Reyer


Institutional Investors and Corporate Carbon Footprint: Global Evidence

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Gianfranco Gianfrate, Tim Kievid, Angelo Nunnari


Accounting for finance is key for climate mitigation pathways

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Stefano Battiston, Irene Monasterolo, Keywan Riahi, Bas J. Van Ruijven


Compounding COVID-19 and climate risks: The interplay of banks’ lending and government’s policy in the shock recovery

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Nepomuk Dunz, Arthur Hrast Essenfelder, Andrea Mazzocchetti, Irene Monasterolo, Marco Raberto


On the Resilience of ESG Stocks during COVID-19: Global Evidence

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Gianfranco Gianfrate, Tim Kievid and Mathijs van Dijk


Determinants of internal carbon pricing

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Nuno Bento, Gianfranco Gianfrate


National Climate Policies and Corporate Internal Carbon Pricing

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Nuno Bento, Gianfranco Gianfrate , Joseph E. Aldy


Climate Change and Credit Risk

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Giusy Capasso, Gianfranco Gianfrate, Marco Spinelli


Future-Proof Your Climate Strategy

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Handbook of Green Finance

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EDHEC-Risk Institute aspires to associate its research efforts on sustainable finance and more specifically on Incorporating ESG factors in investment decisions with a major name from the industry and welcomes sponsorship to conduct a research chair. Research chair involves a close partnership with the financial sponsor and a commitment from EDHEC-Risk to publishing related articles in international academic journals as well as to releasing the research results to the investment management profession through wide distribution of practitioner-oriented publications and presentations at industry conferences.

An EDHEC-Risk Institute research chair therefore enables its sponsor to support high quality, independent research that will be made public; this is an ideal way to demonstrate organisation’s interest and commitment to the finance of climate change.

If you are interested in discussing further research chair opportunities, please contact: Maud Gauchon on +33 (0)4 93 18 78 87 or at [email protected]