Sustainable Investing
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) Identify the possible impacts of climate change (due to physical and transition risk) on economic output
- 2) Identify the possible impacts of climate change (due to physical and transition risk) on different asset classes and industrial sectors
- 3) Construct optimal climate-risk-aware portfolios and strategies
- 4) Estimate the ‘climate beta’
- 5) Estimate the climate risk premium
- 6) Assess the channels through which climate risk (physical and transition) can affect the financial system and, as a consequence, the real economy
- 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.
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) Methodologies for the asset-level assessment of physical and transition climate risks
- 2) The development and operationalization of taxonomies of green activities and carbon-stranded assets
- 3) The strengthening of climate scenarios for economic and financial risk assessment
- 4) The analysis of cascading climate, biodiversity and nature-related risks in the economy and finance
- 5) The compounding of climate, pandemic and sovereign risks, and their implications for fiscal and financial risk management
- 6) Green financial sector initiatives: potential mutual-benefits, implications for decarbonization and financial stability
- 7) Dynamic balance sheet assessment and climate stress test
- 8) The financial stability implications of climate change and the low-carbon transition
- 9) Interplay between climate policy credibility and investors’ climate sentiments
- 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.
Executive Education
- "Shades of green: Do they matter?” - ESG Clarity Intelligence (10/05/2022)
- "Corporate Values Do Have a Market Price” - Bloomberg (16/02/2022)
- "Are investors being misled by grand green claims, attached to pricy financial products?” - Globe and Mail (28/11/2021)
- "Asset owners have little impact in reducing carbon footprints of companies, report finds” - ETF Stream (29/11/2021)
- "Turning Green Into Gold Takes a Leap of Faith” - Bloomberg (24/11/2021)
- "Active ownership as a tool of greenwashing” - Global Investor Group (22/11/2021)
- "Stay or sell? The $110tn investment industry gets tougher on climate” - Financial Times (09/11/2021)
- "«L’engagement sulle emissioni di CO2? Zero risultati. E lo abbiamo dimostrato»” - Il Sole 24 Ore (08/11/2021)
- "Greenwashing by major polluters and investors inflicting "mass destruction"” - Investors Chronicle (04/10/2021)
- "Climate change ETFs found to be undermining war on global warming” - Financial Times (20/09/2021)
- "How Wall Street Is Gaming ESG Scores” - Bloomberg (08/09/2021)
- "Greenwashing in finance: Europe’s push to police ESG investing” - Financial Times (10/03/2021)
- "Avoiding ‘sin stocks’ is no longer enough for ESG ETFs” - Financial Times (01/10/2020)
- EDHEC-Risk ETF survey focuses on ESG – ETF Express (05/10/2020)
- 8 Top Tips For Responsible Leaders – EDHEC Vox (03/10/2020)
- EDHEC and MINES launch Sustainable Finance degree – Global Education Time (19/08/2020)
- Green Pioneers – Investors Chronicle (04/06/2020)
- A Look at the Landscape for Climate Change Finance – Pensions & Investment (April 2020 supplement)
- Opinion | Finance durable : les leçons que nous (ne) tirerons (pas) – Les Echos (23/04/2020)
- Exclusive Interview with scholars of EDHEC-Risk Institute: The Future of Sustainable Investing – The Glocal Hong Kong (12/04/2020)
- Jobs bonanza in stewardship and sustainable investing teams – Financial Times (08/03/2020)
- Climate change finance: the big picture – Investment & Pensions Europe (spring 2020 supplement)
- ETF Insight: Consistent ESG data needed for sustainable investing to avoid greenwashing issues – ETF Sream (06/01/2020)
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]
About EDHEC
Operating from campuses in Lille, Nice, Paris, London and Singapore, EDHEC is one of the world’s top 15 business schools. Fully international and directly connected to the business world, EDHEC commands a strong reputation for research excellence and the ability to train entrepreneurs and managers capable of breaking new ground. EDHEC functions as a genuine laboratory of ideas and produces innovative solutions valued by businesses. The School’s teaching is inspired by its research work and a focus on “learning by doing”, all with the aim of equipping people with the skills to succeed in business.
