EDHEC-Risk Climate Impact Institute’s Post

📰 Discover the 2nd edition of EDHEC’s Climate Finance Highlights! Driven by our institutes and initiatives, including EDHEC-Risk Climate, EDHEC Infra & Private Assets Research Institute, and Scientific Portfolio, an EDHEC Venture, this newsletter brings you the latest #climatefinance cutting-edge research and practical applications. This quarter, we delve into the growing demand for transparency in #climaterisk assessments, the essential role of finance in driving the #climatetransition, and the need for more robust climate scenario models. Our experts also discuss #decarbonisation strategies, the financial sector’s contribution to climate action, and the potential costs of inaction on #infrastructure #sustainability. 📖 To read this newsletter online 👉 https://lnkd.in/dDNjFNgi ✉️ To subscribe to this quarterly newsletter, please contact maud.gauchon@climateimpactedhec.com 🔍 To discover the hub dedicated to EDHEC Business School's Climate Finance Research 👉 https://lnkd.in/dFZzTNCn #MakeAnImpact #AStepForward #ClimateChange #ClimateFinance 

🗣️Meet the Speaker: Heleen de Coninck – Climate Scenarios Expert & Interdisciplinary Thinker Heleen is a Professor at Eindhoven University of Technology and former Coordinating Lead Author of various #IPCC reports. With a focus on sustainable technologies and how they can shape the future of finance, Heleen’s research looks beyond traditional climate models to address real-world applications. 💡What will she bring? Heleen will provide insight into the expected magnitude of physical climate risks, at which speed may these risks materialise, and what expected reactive policy risks are. For financial professionals, her perspective will be invaluable for understanding key questions to discuss with your teams, clients, investment consultants and policymakers on how to integrate scientific principles into your risk strategies—ultimately helping you future-proof your assets in the face of rapidly shifting climate realities. 📅 Join Heleen and others on November 6th to learn how climate science intersects with finance! 👉 Register via: https://lnkd.in/efQG_-wY Carbon Tracker Ortec Finance Sustainable Finance Lab #climaterisk #finance #riskmanagement #investment #pensionfunds #banks #insurance

On Monday, Partner Leila Pourarkin moderated a panel at an event hosted by ESMT Berlin.   The expert forum on adaptation and mitigation finance, focused on effective levers to mobilise climate finance. It was such a rich set of discussions with an impressive set of speakers, revealing the following key takeaway messages:   💲Climate finance will be increasingly influenced by geopolitical tensions and become intertwined with supply chain diversification and trade policy.   💲The current global economic context is leading to capital flying out of developing countries. This calls for greater focus from all climate finance actors, especially MDB and national/regional development Banks, to focus their attention on domestic private finance mobilisation.   💲We have great examples of successful blended finance funds that we can learn from. Let's not reinvent the wheel and use the tools we have at our disposal to scale up climate finance.   With thanks to the panelists for the lively discussions: Executive Director International Finance, Economy and Nature, at European Climate Foundation Morgan Després, Head of Climate Finance Partnership at BlackRock, Anmay Dittman, Chairman of the Advisory Board at Climate Neutrality Foundation, Bernhard Lorentz, and Director at Climate Policy Initiative, Dharshan Wignarajah.   #KayaPartners #climatechange #climatefinance

I am glad to share our recent article in #NatureClimateChange about the role of financial regulations in the net zero carbon transition. Key messages: - The current structure of some financial regulations implicitly favours investment in carbon-intensive activities - Such financial regulations may exacerbate climate-related risks in the financial system - Financial supervisors, regulators and international standard-setting bodies should consider addressing these issues Full article: https://lnkd.in/dSm2u-DB Policy brief: https://lnkd.in/dg-MFmJF Smith School of Enterprise and the Environment - University of Oxford The Institute for New Economic Thinking at the Oxford Martin School University of Oxford Nature Portfolio #ClimateChange #ClimateFinance

A few thoughts from me prompted by this paper from Oxford Smith school (Matteo Gasparini and others) regarding financial regulations - in particular around LLR accounting but same logic consistent in capital requirements - and the impact this has on the transition. The context is that exposures to high-carbon sectors like Oil & Gas tend to have lower PD's and provisions than exposures to some low-carbon sectors like Renewable Power. This is based on current and historic financial ratios and risk data on these types of exposures. However, risks in future should be different to this for high vs low carbon sectors (e.g. due to transition policies) and this is not reflected in historical data sets. A key point to consider here is around time horizons for both accounting and capital frameworks. Highly recommend this BoE paper for further information (particularly paras 31 - 37) - https://lnkd.in/eYB_tGdy. Under the accounting framework you typically calibrate ECL for 12 months and under the micropru capital framework you also typically calibrate for 12 months. There are exceptions to this, for IFRS9 you move to lifetime ECL when the credit risk increases significantly, and the capital framework does have multi year horizons for stress tests (also more flexibility in macropru buffers). You can also argue credit ratings as used in the capital framework take a longer term view. Regulators have tried to capture longer horizons where more physical and transition risks will bite, through scenario analysis (e.g. BoE Climate BES, ECB Climate Stress Test, EBA Fit for 55 etc.). The result is a bank/regulator can have two views for the same types of exposures depending on time horizon - in the near term greener exposures could be treated as riskier in accounting/capital, but in the longer term the same type of exposure could be less risky based on scenario analysis. Importantly, this isn't incoherent or reflective of a design flaw, it's on the basis of the risk profile over different time horizons. This then leads to the question on incentives, the biggest levers here are real economy levers - carbon taxes, green subsidies, activity based regulations. Provisions and capital requirements have an important but likely limited role to play, e.g. they are not a good substitute for carbon taxes. Areas where capital could come in more include: macropru buffers and scalars for banks failing to meet regulatory requirements. Provisions will also need to react as new climate policies are announced and implemented. Banks currently are not typically identifying significant ECL impacts which warrant Post Model Adjustments, ECL scalars, and consideration in ECL economic models - although some are exploring this space (see this PRA letter for more info - https://lnkd.in/eq7Bhv5j)

Happy to share my op-ed in Green Central Banking about the role of financial regulations in the #NetZeroTransition based on our recent article in #NatureClimateChange Model-based regulations are a prerequisite for the net-zero carbon transition. But, as we inevitably undertake this major economic transition to clean energy, the historically low risk of high-carbon energy becomes an increasingly unreliable predictor of their future risk. This has implications for financial regulations and broader societal objectives. A debate is needed on whether financial regulations should be updated to address this new paradigm shift Link: https://lnkd.in/dk-smrSH

Could not agree more with your observations that "ignoring the structural change brought about by the energy transition may lead to an underestimation of the financial risk of portfolios (and an overestimation of the “fair” value of assets)" and "financial regulations need an update in the era of the energy transition." We can debate who is responsible for the risk underestimation (I believe there are specific actors, not simply structural change), but the essential point is that today's financial regulations are not fit for purpose.

Hungry for a new recipe? This one’s on financing the climate transition 🌎 ! Last March 2023, I joined a group of passionate and brilliant experts from government, industry, finance, and academia at a workshop hosted by Climate Compatible Growth #CCG#CCG#CCG in London. We shared common visions of a #lowcarbon future, and participated in a highly interactive dialogue led and curated by the CCG Team. Find the fruit of collaboration recently published here: https://lnkd.in/gtcRvbyt This paper dives into an emerging and effective approach to access #climatefinance that marries political leadership with sound technical analysis. Key features of a roadmap to promote Climate Compatible Growth are: 1.    Politics: Garnering high-level support for decarbonization. 2.    Preparation: Establishing the foundations of institutional capacity. 3.    Vision: Aligning climate change objectives with broader development goals. 4.    Modelling: Conducting deliberative quantification of scenarios. 5.    Consultation: Engaging inclusively across stakeholder groups. 6.    Operationalization: Enhancing the policy and regulatory framework. 7.    Finance: Developing investment plans and financing strategies. Huge thanks to Mark Howells and the CCG team for leading, and inviting us to this brilliant initiative. Very inspiring to be part of this important dialogue with our valued partner, the FCDO Lily Ryan-Collins. Now let the cooking begin! Jamie Leather, Hannah Luscombe, Emma Richardson, James Dixon, Naomi Tan, Vignesh Sridharan, Holger Dalkmann, Johanna Zilliacus

Climate finance, and by extension sustainable finance, will be a defining feature of the multilateral landscape for years to come. It will certainly be an important cornerstone in climate justice. I am grateful to the teams at P3SA: Public and Third Sector Academy for Sustainable Finance and University of Oxford for creating this incredibly concise masterclass in sustainable finance. Ben Caldecott

📰 "Finance of Transition, Transition of Finance" - Latest Quarterly Newsletter Out! We are pleased to share the July edition of the EDHEC-Risk Climate Impact Institute newsletter, featuring: ✔️ Editorial: Discusses the state of financing for #climatechange #mitigation and #adaptation investments and the role finance could play in the necessary transformation of our economies. ✔️ Research Feature: Presents our newest work, supported by Scientific Beta, on the potential impact of climate change 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. Depending on climate action and the location of tipping points, valuation at risk ranges from less than 10% to over 50%. ✔️ Interview: An interview with our #Sustainability Research Director, Dr. Rob Arnold, discussing how we are developing new technological knowledge on mitigation and adaptation strategies for #infrastructure assets as part of a joint initiative with EDHEC Infra & Private Assets Research Institute. ✔️ Industry Analysis Articles: Covering topics such as internal #carbonpricing (#ICP) and #greenwashing, the relevance and limitations of the IPCC RCP/SSP framework, and the monetary and fiscal challenges facing climate action. This, along with our review of recent practitioner-oriented publications and webinars, scientific publications and working papers, and media coverage of the climate-related research work at EDHEC Business School. 💚 A huge thanks to all contributors Rob Arnold Frédéric Ducoulombier Gianfranco Gianfrate Dherminder Kainth Lionel Melin, and our Scientific Director Professor Riccardo Rebonato.