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Establishing whether "green" and carbon-intensive assets carry a positive or negative risk premium matters a lot for investment managers, because it determines whether these assets act as hedges, or they add to equity risk. Unfortunately, attempts to estimate the climate risk premium empirically have met with near-insurmountable difficulties and leave the practitioner puzzled.

Riccardo Rebonato, Scientific Director, EDHEC-Risk Climate Impact Institute and Professor of Finance, EDHEC Business School, explains what one may learn about the climate risk premium by employing a state-of-the-art integrated modeling approach, and discuss investment implications. Topics covered include:

  • The climate risk premium: what it is and why investors should care
  • Hedging climate risk: when is it possible and when should one hedge?
  • Are "green" assets hedges or do they add to equity risk?
  • What is the term structure of the climate risk premium: are long- or short-dated assets more strongly affected?
  • How does the climate risk premium depend on future abatement policies?
  • How 'robust' are these results to climate uncertainties and model limitations?
  • Is the market asleep at the wheel?


For practioners you wish to gain more insight into the research led by Professor Rebonato, we invite you to read some of his recent contributions: