EDHEC-Risk Climate: the third newsletter is out!

In October 2022, EDHEC-Risk Institute became EDHEC-Risk Climate Impact Institute (EDHEC-Risk Climate) reflecting the commitment of EDHEC Business School to advancing the integration of sustainability imperatives across economic activities.

Its third newsletter has just been released (Feb. 2024), including articles, research findings, and project updates on the most current issues in sustainable finance. Read the EDHEC-Risk Climate news dedicated to this newsletter.

Editorial - Greenwashing Regulation

By Frédéric Ducoulombier, Director of EDHEC-Risk Climate

The demand for investments integrating Environmental, Social, and Governance (ESG) dimensions has increased significantly in the past decade and the assets that financial intermediaries claim to manage responsibly and sustainably have close to trebled, reportedly growing to represent a third of overall assets under management. However, the industry-accepted definition of sustainable and responsible investing is nothing if not inclusive. As incorporating ESG issues into investment management now suffices to claim the responsible investment badge, the industry welcomes a dazzling array of strategies with heterogeneous objectives, potential sustainability contributions, and methodologies... Read this editorial

Feature - Bridging the Gap: Making Climate Scenarios Fit for Investors

By Riccardo Rebonato, EDHEC Professor, Scientfic Director of EDHEC-Risk Climate

Knowing which economic consequences climate change will have for asset pricing is clearly important for financial decision-makers. One way to present this information is via scenario analysis and stress testing. Scenario analysis is usually defined as the exploration of ‘plausible’ outcomes, where the term ‘plausible’ clearly has an implicit probabilistic connotation, which is, however, usually not quantified. It is not limited to the analysis of the most likely outcome, but does not usually look at extreme conditions. As for stress testing, the term refers to the scenarios that are still plausible, but also in some sense ‘extreme’. The two requirements (being extreme yet plausible) clearly generate a tension. Despite these differences in ‘intensity’, scenario planning and stress testing are methodologically identical... Read this feature

Interview - Climate Risk Integration: A Global Investor Concern

With Felix Goltz, Research Director at Scientific Beta

Scientific Beta has more than ten years of experience in the integration of Environmental, Social, and Governance considerations into indexing. How did this start and how have your integration principles and approaches evolved over the years?

Felix Goltz: Since its launch in 2012, Scientific Beta has put ESG investing at the centre of its index solutions. Our early ESG research assessed ESG portfolio construction methodologies and evaluated the relevance of different types of ESG data. These research efforts have had a strong impact on Scientific Beta’s index offering. From the start, we provided client-specific ESG exclusions. As early as 2015, we provided carbon intensity reduction for all Scientific Beta indices. In 2019, we extended options available to investors for ESG and Low Carbon filters. And in 2021, we launched a climate index series... Read this interview

Industry Analysis

Scope for Divergence – The Status of Value Chain Emissions Accounting, Reporting and Estimation and Implications for Investors and Standard Setters

By Frédéric Ducoulombier, Director of EDHEC-Risk Climate

The number of companies disclosing estimates of greenhouse gas emissions in their value chains is set to increase rapidly in the second half of the decade as mandatory climate reporting ramps up in key jurisdictions and more companies are enticed or pressured by capital providers, business partners, and customers to produce such estimates. While value chain emissions are widely regarded as critical to understanding an organisation’s climate-related impact and transition risks and opportunities, the perspective of their inclusion in the scope of a US Securities and Exchange Commission (SEC) climate disclosure rule... Read this analysis

Measuring the Greenness of Green Bonds

By Gianfranco Gianfrate, EDHEC Professor, Research Director at EDHEC-Risk Climate

Green bonds are a relatively new type of bond with the distinguishing feature that proceeds are used to finance environmentally friendly projects, primarily related to climate change mitigation and adaptation initiatives. The first corporate green bond was issued in 2013 by a French electricity firm to fund a technologically advanced climate-friendly project. Since then, public attention to environmental, social, and governance (ESG) issues has reached unprecedented levels and green bond issuances have skyrocketed reaching $2.5trillion globally in January 2023 according to the World Bank. With the increase in the size of the green bonds market, the complexity of such financial instruments has also risen... Read this analysis

On the Triple Illusion of Double Materiality

By Frédéric Ducoulombier, Director of EDHEC-Risk Climate

Materiality is a key principle of corporate reporting, but its definition has evolved over time to capture changing priorities and it remains contested, especially in relation to corporate responsibility and sustainability – other contested concepts.  What is reasonably established is that an information is deemed to be material if omitting, misstating, or obscuring it could reasonably be expected to influence the assessments or decisions that users make based on corporate statements. Materiality however depends on perceptions of who these users are and what they need the information for... Read this analysis

Recent EDHEC-Risk Climate Publications

Climate Scenario Analysis and Stress Testing for Investors: A Probabilistic Approach

In this paper, the authors - Riccardo Rebonato, Dherminder Kainth, Lionel Melin - propose a framework to produce scenarios that reflect the full uncertainty of outcomes, and give an (approximate) assessment of the relative likelihood of their occurrence. A substantial body of high-quality work has already been devoted to creating climate scenarios. However, they were not designed with financial decision-makers in mind, and therefore are not well suited to their needs.

Portfolio Losses from Climate Damages: A Guide for Long-Term Investors

Regulators and stakeholders are pressing institutional investors to assess and manage their exposure to climate change risks. In this context, financial professionals need to critically assess the tools at their disposal. In this piece, Scientific Director Professor Riccardo Rebonato carefully examines the (de)merits of the advice given to pension trustees and engages with critics who assert that pensions are being put at risk by the flawed research and groupthink of climate economists.

Value versus Values: What Is the Sign of the Climate Risk Premium?

Given the conflicting messages about the magnitude and sign of the climate risk premium provided by the empirical studies to date, the author - Riccardo Rebonato - undertakes a theoretical estimation of the sign of the risk premium. He finds that, in absence of tipping points, the payoff of green (brown) securities covaries positively (negatively) with consumption growth, and should therefore command a positive (negative) risk premium.

This third EDHEC-Risk Climate newsletter features more content: a selection of academic publications, of industry publications, videos of presentations and webinars replays, news, a press review...

To browse this newsletter entirely, go to the dedicated webpage

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