As their name suggests, transboundary climate risks do not respect national or international borders. They are being triggered by climate change and by our adaptation responses to that challenge. A climate hazard in one country may well have an impact that crosses national borders to affect its neighbours. In our interconnected world, however, its impact may also jump across entire regions and vast oceans to harm distant countries. From flooding in Bangkok that disrupts global industrial production, to the spread of diseases that hold back economies, transboundary climate risks are an...
In this working paper entitled "Time-varying Environmental Betas and Latent Green Factors", the authors study whether the US stock market is pricing exposures to climate risks through the lense of a latent linear factor model with time-varying betas estimable by an extension of the instrumented principal component analysis (IPCA) of Kelly, Pruitt, and Su (2019). In their specification, the factor loadings are allowed to be functions of both “financial” and environmental (“green”) company specific characteristics, such as ESG ratings and carbon intensity. They extend the...
We can limit the future temperature impact of climate change in two ways: reducing our use of CO2 emitting fuels as an energy source (abatement), and using negative emission technologies (NETs) to remove existing CO2 from the atmosphere (removal). Using a modification of the DICE model, authors analyse the optimal use of these two policy responses to climate change. After calibrating the marginal costs of abatement and CO2 removal to the latest scientific information, they find that carbon removal must play a very important role in an optimal...
As climate change increasingly challenges business models, the disclosure of firm environmental performance casts growing attention by corporate stakeholders. This creates wider opportunities and incentives for greenwashing behaviors. We propose a novel measure of greenwashing and investigate its determinants and consequences for US firms. We show the that board characteristics are variously associated with the apparent degree of corporate greenwashing. Importantly, we find that greenwashing reduces firm value
Climate-aware institutional investors are assumed to affect the transition towards a low carbon economy by exercising their prerogatives as owners of global companies. Investors concerned with climate change can influence investee companies’ carbon footprint by voting at shareholder meetings on climate-related issues and by actively engaging with executives and board members. Authors study to what extent institutional investors’ ownership affected corporate carbon emissions in 68 countries for the period of 2007 to 2018. Results show that institutional investment on average does not...
Authors investigate the relationship between exposure to climate change and firm credit risk. They show that the distance-to-default, a widely used market-based measure of corporate default risk, is negatively associated with the amount of a firm’s carbon emissions and carbon intensity. Therefore, companies with high carbon footprint are perceived by the market as more likely to default, ceteris paribus. The carbon footprint decreases the distance-to-default following shocks - such as the Paris Agreement - that reveal policymakers’ intention to implement stricter climate policies. Overall,...
This paper conducts a performance measurement of SRI funds and assesses the impact of changing the reference from a standard SRI index to an efficient SRI index. The analysis of fund performance shows that an efficient SRI index raises the bar for actively managed SRI funds. While about 62% of funds have a positive information ratio when compared to the cap-weighted EuroStoxx Sustainability Index, only about 36% of funds do so with respect to the Efficient SRI Index. It is also interesting to note that the median information ratio across funds is slightly positive (0.04) when using the...
In an initial study done in 2008, EDHEC-Risk Institute established that socially responsible (SRI) funds—those funds made by selecting securities that meet ESG (environmental, social, governance) criteria—distributed in France did not produce both positive and statistically significant alpha. That study, which relied on the Fama-French three-factor model, covered a six-year period ending in December 2007, thus not including the recent financial crisis. The purpose of the present study was to update these results by extending the analysis to the years 2008 and 2009.
We use a sample of 148 events related to corporate social responsibility (CSR) to assess the impact of CSR on corporate financial performance. There is considerable heterogeneity in market reaction to different dimensions of CSR. Not all dimensions offer a positive reward; some yield a negative and even statistically significant impact on the firms’ stock returns. One main conclusion of this study is that socially responsible investment is not an excuse for passive management. There is still room for timing and stock picking within the socially responsible universe of stocks.
This document reviews the concept of green investing and reports the results of a European survey of investment management professionals. The objective is to provide background on industry and academic research into green investing and assess the views and uses of green investing. Our survey shows that green investing is a significant movement in which survey respondents are heavily involved. Nearly 90% of respondents consider environmental protection an investment theme and the same percentage plans to do more green investing in the future.
ults of this EDHEC position paper show that none of the sixty-two funds in the sample, covering various investment zones, manage to produce both positive and significant alpha (outperformance) over a six-year period and that the few significant alpha values are negative. Moreover, most of the funds generate negative, non-significant alpha. The study also shows that alpha values estimated over one year change greatly from one year to the next. The use of a period of various lengths shows that results can vary greatly from one length to another.
L’objectif de ce rapport a été, dans un premier temps, de trancher le débat méthodologique sur le choix de la valeur du taux d’actualisation des concessionnaires autoroutiers dans le cadre de leur actuelle privatisation. De nombreuses polémiques sont nées en référence à un rapport du Commissariat général au Plan de février 2005, qui conclut que les projets d’investissements publics doivent être réalisés sur 17/23 la base d’un taux d’actualisation de 4%. A notre avis, ce taux ne peut pas être retenu dans le cadre d’une valorisation effectuée par un investisseur privé, car il n’intègre...