Written on 08 Mar 2022.
Financial decisions worldwide are increasingly influenced by the scarcity of resources and climate. 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. The financial implications of climatic change risks - in a context of evolving climate policies - are still understudied.
In this context, on December 16 and 17, 2019 (1), the EDHEC-Risk Institute, in partnership with La Place Fintech and the Institut Louis Bachelier, held the “EDHEC Climate Finance Conference” at the Palais Brongniart in Paris. The first day of this conference was dedicated to scholars’ presentations, under the supervision of Laurent Calvet (EDHEC), Raman Uppal (EDHEC) and Gianfranco Gianfrate (EDHEC), as guest editors. The second day gathered researchers, finance professionals, policymakers and journalists to discuss the threats and opportunities of the finance of climate change.
The academic conference held on December 16 was co-sponsored by the Journal of Corporate Finance, with the objective to promote both theoretical and empirical research on the financial challenges and opportunities posed by climatic risks. 77 papers from all over the world were received for this conference, and 27 of them were selected to be presented on that day and covered amongst other important topics: the efficiency of the market pricing of climatic risks, the role of venture capital and alternative finance to develop new low-emissions technologies, the climate risks assessment and disclosure for banks and non-financial companies, the financial management decisions affected by climate risks and policies, and the corporate governance conflicts and incentives in addressing climate risks. To perform this task, the three guest editors were accompanied by an impressive international Scientific Committee composed of Ben Caldecott (Oxford), Caroline Flammer (Boston), Harrison Hong (Columbia), Matteo Maggiori (Harvard), Dirk Schoenmaker (Rotterdam) and Enrique Schroth (Cass BS, now at EDHEC).
Last February, a special edition of the Journal of Corporate Finance narrowed down this selection to 6 papers, presented in the editorial entitled "The Finance of Climate Change" by the three guest editors, professors at EDHEC - Laurent Calvet, Raman Uppal and Gianfranco Gianfrate : « The scale of the investments that appear to be needed for the transition to a low-carbon economy is unprecedented. Assuming the functionalist view of finance proposed by Nobel laureate Robert C. Merton (1995), we need to unleash financial innovation to efficiently mobilize capital towards investments that can mitigate climatic risks and their consequences. Financial innovation related to climate change (e.g., green bonds) still appears to be in its infancy: several avenues of research are opening up for scholars willing to investigate climate risks, thus paving the way for solutions to our planet's most urgent existential challenges. »
(1) Amundi Asset Management was the financial sponsor and IPE-Investment & Pensions Europe the media partner