Climate change: a new type of risk for the financial industry?

Written on 25 Jan 2022.

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Climate change has been recognized as a new type of risk for finance by academics and financial supervisors and regulators in particular.

On January 18, Irene Monasterolo, Professor of Climate Finance, EDHEC Business School, EDHEC-Risk Institute has been invited to participate in a virtual panel discussion on climate change and novel risks, organized by Portfolio Management Research, as part of their THEORY meets PRACTICE series.

These series of conversations with Frank Fabozzi, the longtime editor of The Journal of Portfolio Management and award-winning author on asset management, intends to bring finance professionals closer to some of the greatest minds in finance today, from leading investors, researchers and investment management executives.

Irene Monasterolo, EDHEC Risk Institute




  • Richard Berner, Clinical Professor of Management Practice in Finance and Co-Director, Stern Volatility and Risk Institute
  • Wylie Tollette, EVP Client Portfolio Solutions, Franklin Templeton Investments
  • Joe Simonian, Founder and CIO, Autonomous Investment Technologies



​​​​​​Out now: Replay "Novel Risks" 


The session entitled: "NOVEL RISKS" tried to answers the following issues (but not restricted to):

✔️ Why climate change represents a new type of risk for finance?
✔️ Do we have metrics and methods to assess it?
✔️ What lessons from climate stress test exercises?
Are there emerging consequential risks in addition to climate-related, cyber, geopolitical and pandemic risks?
✔️ What disclosures are needed in order to help measure these and other risks?
✔️ What tools can we employ to manage, hedge or transfer these risks?
✔️ What are the primary “novel” risks that investors face today? Do we think these risks are properly priced?
✔️ Do these risks show up in traditional risk measures, statistics and metrics?
✔️ Can investors manage or mitigate these risks or are they inevitable/embedded?
✔️ Are there emerging consequential risks in addition to climate-related, cyber, geopolitical and pandemic risks?
✔️ What tools do we need to identify and analyze them?


Talking about the lessons we have learned from climate stress-test exercices, Irene exposed three points :

  1. The first is that we should consider that climate risk is only working with past series data on emissions which does not really allow us to assess investors exposure to climate risk.
  2. The second point is that we need to work with scenarios and adopt a forward looking approach. These scenarios should consider not only emissions but overall the output of economic activities that compose our economy and to which financial actors are exposed, which could be both high carbon and low carbon activities.
  3. And the third point is that we still talk about financial risk, and thus we should consider the conditions for the financial system to amplify the potential losses from climate change in order to build risk management tools and policies and regulation to mitigate the potential impact of such risks and avoid moral hazard.


Talking about the disclosures that are needed in order to help measure risks, Irene exposed her point of view:

We need better disclosure. But in order to have better disclosure, we need clear taxonomies of green investments and unsustainable investments. In the European Union, the European Commission started to work on the EU taxonomy but then we saw the derailment in the last phases. And this is not a good signal for markets because investors find a risk to identify what are green investments, what are the shades of green. It's a new type of expertise that they need to develop and it takes a lot of time. And this is the role of regulation to identify what is considered as green and not green. If they want then investors to do climate financial risk disclosure and climate financial risk assessment. We need taxonomy is on the one hand to signal the market, but on the other hand also in order to signal the market; we need coherent policy and government policies. So far we haven't seen it.


Full information on the webinar can be found on the Portolio Management Research website.  


About the speakers:

Richard Berner is Clinical Professor of Management Practice in the Department of Finance, and, with Professor Robert Engle, is Co-Director of the Stern Volatility and Risk Institute. Previously, he served as the first director of the Office of Financial Research (OFR) (2013-2017), and as counselor to the Secretary of the Treasury (2011 to 2013). He is an advisor to FinRegLab, and member of the Milken Fintech initiative, Board of Advisors of HData, and the Adisory Council of the Alliance for Inoovative Regulation, among others.

Wylie Tollette is executive vice president and head of client investment solutions for Franklin Templeton Investment Solutions. Prior to rejoining Franklin Templeton in 2018, Mr. Tollette served as chief operating investment officer at CalPERS, the largest defined-benefit public pension fund in the US. Prior to joining CalPERS in 2014, Mr. Tollette worked at Franklin Templeton for almost 20 years, including as the head of the Performance Analysis and Investment Risk team.

Irene Monasterolo is Professor of Climate Finance at EDHEC Business School and EDHEC-Risk Institute in Nice (FR) and senior research fellow at the Vienna University of Economics and Business (Austria) and Boston University (USA), as well as visiting scholar at the International Institute for Applied Systems Analysis (Austria). Irene holds a PhD in Agri-food economics and statistics from the University of Bologna (IT) and two post doctoral experiences in Cambridge (UK) and Boston University (USA), on climate finance.

Joseph Simonian is a noted contributor to leading finance journals, a prominent speaker at investment events worldwide and an Advisory Board member for the Financial Data Professional Institute. He holds a Ph.D. from the University of California; an M.A. from Columbia University; as well as a B.A. from the University of California. He is currently the co-editor of the Journal of Financial Data Science and Advisory Board member for the Financial Data Professional Institute