Climate risks, investors’ expectations and financial stability

Climate-related financial risks play now a key role in the agenda of central banks and financial regulators.

During a 1-hour webinar entitled "Climate risks, investors’ expectations and financial stability" organised by INET Complexity Economics Programme (University of Oxford), Irene Monasterolo, Research Programme Director, EDHEC-Risk Climate and Professor of Climate Finance, EDHEC Business School, will present results from a stream of work in complexity economics and finance that investigates the macro-financial criticality of climate risks.

In the research presented "The double materiality of climate physical and transition risks in the euro area", the authors first present results of a dynamic balance sheet assessment of the double materiality of climate risks for the Euro Area economy and banking sector. They tailor and apply the EIRIN Stock-Flow Consistent (SFC) behavioural model to the Network for Greening the Financial System’s climate scenarios. They also consider the impact of investors’ climate sentiments on investment decisions and decarbonization. They find that an orderly transition achieves early co-benefits by reducing carbon emissions (12% less in 2040 than in 2020) while supporting growth in economic output. In contrast, a disorderly transition worsens the euro area economic performance and financial stability. Furthermore, firms’ expectations about climate policy credibility affect their investment decision in high and low-carbon goods, and the realization of carbon stranded assets.

Then, they present a framework to analyse the interplay of investors’ expectations and climate policy credibility, and the impacts on transition scenarios and on financial stability. By connecting process-based Integrated Assessment Models with financial network-based climate stress-test, they find that neglecting investors’ expectations could lead to a wrong assessment of risks and opportunities in the transition, and thus to inconsistent climate policy and investment decisions.

REGISTER FOR THIS HYBRID EVENT

Date

Wednesday 26/04/2023 - Wednesday 26/04/2023

14:30 - 15:30 BST

Place

Virtual & On-site (Oxford, UK)

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.

About EDHEC-Risk Climate Impact Institute

Marking the priority assigned by the School to sustainability issues and building on its research programmes exploring the relationships between climate change and finance, EDHEC-Risk Institute became EDHEC-Risk Climate Impact Institute in October 2022. The Institute's mission is to help private and public decision-makers manage climate-related financial risks and make the best use of the financial tools available to transition to low-emission and climate-resilient economies. The Institute’s research programmes explore the relationships between climate change and finance and our key ambition is to become a leading academic reference point for long-term investors, helping them to manage the asset-pricing implications of climate change as well as mitigation and adaptation efforts.