Reinventing climate investing: building equity portfolios for climate risk mitigation and adaptation

Bender, Jennifer; Bridges, Todd Arthur; Shah, Kushal

doi:10.1080/20430795.2019.1579512

Cited by 40 publications

(26 citation statements)

References 10 publications

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“…54 See, e.g., Busch et al (2016), p 311 (arguing that the long-term impact of investment strategies may depend on multiple factors and that the consequences of the ESG integration strategies are still uncertain on several aspects). Against Pedersen et al (2020) (seeking to model the impact of ESG preferences, trying to define the 'ESG-efficient frontier' and showing the costs and benefits of responsible investing); Bender et al (2019) (analyzing metrics for capturing climate-related investment considerations). 55 See the references supra n. 23.…”

Section: Lack Of Expert Consensusmentioning

confidence: 99%

“…The ESAs' proposal to set up a single EU Data Platform 64 covering both financial and ESG information, while reducing the costs of sustainability research, will not provide a fundamental change in the short term given that only data which are reported by issuers and intermediaries can be made available via that Platform, and only if that happens in a more or less standardized manner will such data be useful for datadriven analysis. 65 Note that the Frankfurt School UCITS study describes the status quo on the eve of the coming into force of the revised Benchmark Regulation as well as the SFDR 61 See, e.g., Bender et al (2019), pp 191-213 (reviewing data characteristics for metrics such as carbon intensity, green revenue, and fossil fuel reserves, highlighting their coverage and distributional characteristics; even though the data can illuminate risk factors to be included in a corporate or investment strategy, we lack a financial adaptation strategy building on such data). 62 ESAs, July Letter, supra n. 48.…”

Section: Lack Of Data Linking Sustainability and Financementioning

confidence: 99%

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Regulating Sustainable Finance in the Dark

Zetzsche

Anker-Sørensen

2022

Eur Bus Org Law Rev

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Analyzing the revised EU Sustainable Finance Strategy disclosed in two steps in April and July 2021, we identify as core issues of any sustainability-oriented financial regulation a lack of data on profitability of sustainable investments, a lack of broadly acknowledged theoretical insights (typically laid down in standard models) into the co-relation and causation of sustainability factors with financial data, and a lack of a consistent application of recently adopted rules and standards. The three factors together are now hindering a rational, calculated approach to allocating funds with a view to sustainability which we usually associate with ‘finance’. These deficiencies will be addressed once (1) the EU’s sustainability taxonomy is implemented by most issuers of financial products, (2) several years of taxonomy-based reporting by issuers and originators of financial products is made available, and (3) these data have been used for validating emerging new sustainable finance benchmarks and models for investment and risk management. Until that day (which we expect to be at least 5 years from now), relying on Roberta Romano’s famous adage, regulators seeking to further sustainability by legal means, effectively ‘regulate in the dark.’In order to avoid undesirable and unforeseeable effects of regulation, we argue against any regulation addressing capital requirements, mandating sustainability risk modelling or the inclusion of sustainability factors in investment or remuneration policies. Adopting such rules in the current premature state risks that Europe will not be able to rely on the capital markets to finance the sustainability transformation as planned. Instead, regulators should focus on enhancing expertise on the side of intermediaries and supervisors alike. In particular, regulators should introduce smart regulation tools, such as sandboxes, innovation hubs, and waiver programmes benefiting early adopters of sustainable finance modelling/models, utilizing approaches developed in other fields of experimental financial regulation (in particular Fintech and RegTech).

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Section: Lack Of Expert Consensusmentioning

confidence: 99%

Section: Lack Of Data Linking Sustainability and Financementioning

confidence: 99%

Regulating Sustainable Finance in the Dark

Zetzsche

Anker-Sørensen

2022

Eur Bus Org Law Rev

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“…But incorporating climate-related risk into investment decisions remains a significant challenge. Major obstacles include finding ways to quantify climate-related risks (Bender et al, 2019) and stranded asset potential (Buhr, 2017), limitations of established financial risk models (Thomä & Chenet, 2017) and lack of information (TCFD, 2017;Thomä et al, 2019). Some power sector investors may choose to put faith in technological development to mitigate risk, such as carbon capture and storage from coal plants (Byrd & Cooperman, 2018).…”

Section: Incorporating Climate-related Risk Into Investment Decisionsmentioning

confidence: 99%

“…In order to understand how climate-related risks are factored into decisions to invest in power plants in Southeast Asia, we applied a climate-related risk framework based upon the work of TCFD (2017) and Clapp et al (2017). The framework, shown in Figure 1, follows the literature in categorizing direct and indirect climaterisks as 'physical' and 'transition' risks, respectively (Bender et al, 2019;Clapp et al, 2017;TCFD, 2017; see Thomä & Chenet, 2017).…”

Section: A Framework For Analyzing Climate-related Risksmentioning

confidence: 99%

Perceptions of climate-related risk in Southeast Asia’s power sector

Johnson

Pont²,

Gueguen-Teil³

2020

Climate Policy

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Given the growing international pressure to mitigate climate change and increasing fears around climate impacts, current expectations of continued investment in fossil fuels in Southeast Asia's power sector appear puzzling. This paper explores how power sector investors perceive climate-related risks and how they factor these risks into investment decision-making. In doing so, we seek to explain why countries in Southeast Asia are making plans forand investors are continuing to invest inpredominantly fossil fuel-based power generation at the expense of renewable or clean generation options, and what it would take to substantially shift investment from fossil fuel-based generation into renewable options in the region. Analysis of 17 interviews with industry experts suggests that there is a significant gap between the need to integrate climate-related risks within investor decisionmaking, and the way these risks are currently being integrated and addressed in the Southeast Asia power sector. Climate-related risk appears to be either not a significant factor, ignored in light of other concerns, or only superficially integrated into decision-making. The results of this research point to an urgent need for action targeted at energy-sector investors in the region in order to shed light on climaterelated risks, share information on the likelihood and magnitude of risks, lay out clearly the potential for stranded assets in a 10-15-year time frame, and encourage transparent, open and respectful dialogue and discussion on these critical issues. Key policy insights. Power sector investors in Southeast Asia generally do not consider climate-related risks as a significant factor when making investment decisions.. Dominance of established routines and mindsets lead to omission of in-depth analysis of climate-related risks and skewed perceptions of risk in renewable energy investments.. Pressure to commit large sums through recognized investment channels creates path dependency towards continued financing of large-scale fossil fuel projects.. Financial governance mechanisms generally have very low compliance requirements regarding reporting on and mitigating climate-related risks.. Policy and regulatory action is needed to raise awareness of climate-related risks, lay out potential for stranded assets and create opportunities for investing in renewable energy.

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“…We define adaptation investment actions as activities that improve the resilience of an investment portfolio to the physical impact of climate change. These include adaptation investments on existing infrastructure, business models and assets at risk (Bender, Bridges, and Shah 2019).…”

Section: Introductionmentioning

confidence: 99%

Mobilizing private sector investment for climate action: enhancing ambition and scaling up implementation

Adhikari

Chalkasra

2021

Journal of Sustainable Finance & Investment

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Private-sector finance has been widely seen as a step to scale up access to resources for ambitious climate action, given the limited availability of public resources. However, there is a knowledge gap about the risks, barriers, and opportunities associated with greater private investment. This paper analyses some important barriers that commonly inhibit private sector investment in climate adaptation action. The analysis draws on case studies of small and medium-sized business (SMEs), multinational companies (MNCs), B corporations and impact investors. Our analysis confirms that private sector actors are willing to invest in climate adaptation, but their investment decisions are constrained by risk profiles associated with climate adaptation projects, the lack of financially viable and bankable projects, and complete knowledge of climate risk that guide adaptation decision. A tailored approach is required to leverage private sector finance, and conducive public policy interventions will facilitate to mobilize different types of private sector actors.

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Reinventing climate investing: building equity portfolios for climate risk mitigation and adaptation

Cited by 40 publications

References 10 publications

Regulating Sustainable Finance in the Dark

Regulating Sustainable Finance in the Dark

Perceptions of climate-related risk in Southeast Asia’s power sector

Mobilizing private sector investment for climate action: enhancing ambition and scaling up implementation

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