EDHEC-Risk Climate July 2024 Newsletter is out!
Written on 15 Jul 2024.
We are delighted to present our July 2024 newsletter, featuring breakthroughs in equity valuation modeling, assessments on the impact of internal carbon pricing, and the use of the RCP/SSP Framework for financial decision-making. Additionally, we discuss the implications of asset pricing in the context of climate change.
Frederic Ducoulombier, Director of EDHEC-Risk Climate opens the editorial, with an article entitled "Finance for the Transition and Transition of Finance". He emphasizes the urgent need for increased investment in climate change mitigation and adaptation, aligning financial resources with sustainability goals. The article criticizes the financial industry for prioritizing short-term profits over long-term environmental benefits and stresses the industry's potential role as a steward of the common good. Ducoulombier argues that Governments must provide robust regulatory frameworks and clear signals to drive this transition. The financial sector should leverage its expertise in risk management and innovation to support sustainable investments and help mitigate climate-related risks.
Our feature “Sizing Up the Climate Threat to Global Equity Values – A Novel Approach” summarizes key insights from our latest research, supported by Scientific Beta, on modelling climate change’s impact on global equity valuation. The research extends climate-aware valuation techniques in three important ways and reveals shocking results about the extent of potential repricing. Methodological innovations include a full probabilistic treatment of climate and economic uncertainty, state-dependent discounting, and integrated analysis of transition costs and physical damages. Impact analyses reveal that equity values are significantly affected by the aggressiveness of emission abatement policies, the presence of climate tipping points, and central banks' ability to lower rates during economic distress. The study shows potential valuation impacts ranging from less than 10% with robust abatement actions to over 50% in scenarios with minimal action and tipping points.
In the interview “Tech-Driven Resilience: Evaluating ESG Impacts and Risks in Infrastructure Investments”, Sustainability Research Director Dr. Rob Arnold, discusses the creation of a new body of knowledge on decarbonization and climate resistance strategies as well as his collaboration with EDHEC Infra & Private Assets Research Institute on sustainable infrastructure taxonomies, the relevance to non-financial companies and investors, and the challenges in collecting climate risk data.
The newsletter includes:
- Internal Carbon Pricing: Impact or Greenwashing: An expert’s view on the effect of internal carbon pricing, its use as an investment information tool, and whether it is simply greenwashing.
- Assessing the RCP/SSP Framework for Financial Decision Making: An analysis of the RCP/SSP Framework, its construction, issues, and recommendations to address these shortcomings.
- Dealing with Climate Change: Asset Pricing Implications of Monetary and Fiscal Choices: A warning that investors should not expect 2050 decarbonization targets to be met and should therefore anticipate significant impacts on asset prices.
- Decarbonization and the pace of Economic Growth: A recent research paper using an adaptation of a popular Integrated Assessment Model to explore whether temperatures will vary depending on states of economic output.
- The Link Between Physical and Transition Risk: A working paper explaining the relationship between both kinds of climate risks and noting that uncertainty in results decreases with more aggressive abatement policies.
- Selected sustainability publications by Scientific Portfolio, EDHEC Infra & Private Assets Research Institute and EDHEC Business School faculty.
Additionally, it provides information on EDHEC-Risk Climate’s latest research publications, events, videos and news, and also includes a press review.
Access all articles here EDHEC-Risk Climate Newsletter - July 2024 Issue
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.
