Reference Publications
Explore detailed reports and studies that provide comprehensive analyses of climate-related financial issues.
Infrastructure Decarbonisation and Resilience Strategies
May 2024, EDHEC Infra & Private Assets paper - N. Manocha, R. Arnold & C. Hubert
This paper presents the foundation of research at EDHEC Infra and Private Assets (EIPA) dedicated to decarbonisation and climate adaptation of infrastructure assets. It identifies the main strategies that each superclass can use to decarbonise and build resilience to floods, storms, extreme heat and extreme cold.
Do Climate-Related Exclusions Have an Effect on Portfolio Risk and Diversification? A Contribution to the Article 9 Funds Controversy
May 2024, Scientific Portfolio paper - V. Bouchet, A. Morandière & B. Vaucher
The authors examine the impact of these controversial stocks on the risk profile of 161 funds with a ‘sustainable investment objective’. They show that excluding these stocks with a naive reallocation technique has a limited effect, which can be further reduced via an optimization procedure. These results suggest that holding stocks with a negative contribution to climate change currently has no justification from a risk perspective.
Scope for Divergence - The status of value chain emissions accounting, reporting and estimation, and implications for investors and standard setters
March 2024, EDHEC-Risk Climate policy report - F. Ducoulombier
This policy report offers comprehensive insights into accounting for greenhouse gas emissions throughout companies' value chains, and the challenges this process poses to companies and investors. The report explains how fiduciaries can ensure that consideration of value chain emissions issues is fit for purpose and how standard setters can avoid abetting greenwashing. It concludes with recommendations to companies, investors, and policymakers to enhance the quality, relevance, and cost-efficiency of disclosures.
Institutional Equity Portfolios: How Can Asset Owners Build Coherent Sustainable Strategies?
March 2024, Scientific Portfolio paper - V. Bouchet, S. Safaee
This article aims to assist institutional asset owners faced with the questions of financial greenwashing and of the real impact of sustainable finance as they try to build a sustainable portfolio, whether indexed or active. The authors highlight that the main building blocks that investors ought to consider – themes, levers (exclusions, allocation, engagement) and data - are interdependent. They then propose a classification of sustainable investments, as well as different levels of ambition in terms of extra-financial impact.
Computing Extreme Climate Value for Infrastructure Investments: Asset Pricing Applied to NGFS Phase 4 and Oxford Economics Scenarios to Measuring Climate Risks at the Asset Level
January 2024, EDHEC Infra & Private Assets paper - B. Jayles & J. Shen
Investors in infrastructure assets are increasingly concerned by the risks posed by climate change. Understanding the impact of climate risks is critical when making informed decisions in infrastructure investment, and there is a growing need for a quantitative assessment of climate risks and their impact on infrastructure portfolios. This paper describes the novel method developed by the authors to measure climate risks. While they here apply this method to infrastructure assets, it paves the way to using similar approaches to enlarge the scope of its application.
Physical Climate Risk Survey 2024: Those in the Infrastructure Investment Industry are Concerned and Lack Data
January 2024, EDHEC Infra & Private Assets survey- N. Amenc, F. Blanc-Brude, A. James
This survey was conducted among investors and other professionals who were invited to an EDHECinfra presentation allowing the authors to poll 70 investment industry professionals including managers with more than USD2 trillion under management. They are concerned about physical climate risk and believe that they have almost no idea how it will affect unlisted infrastructure assets; that’s the clear message they delivered regarding the risks to the asset class.
Climate Scenario Analysis and Stress Testing for Investors: A Probabilistic Approach
January 2024, EDHEC-Risk Climate paper - R. Rebonato, D. Kainth & L. Melin
In this paper, the authors 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.
Highway to Hell: Climate Risks will Cost Hundreds of Billions to Investors in Infrastructure Before 2050
September 2023, EDHEC Infra & Private Assets paper - N. Amenc, F. Blanc-Brude, B. Jayles, A. Gupta, D. Marcelo & J. Orminski
This paper presents an assessment of transition and physical risks in the privately invested infrastructure sector. Leveraging the NGFS scenarios, we quantified the costs associated with delayed or uncoordinated transition and evaluated the potential portfolio value loss resulting from physical risks in the absence of climate action.
Asleep at the Wheel? The Risk of Sudden Price Adjustments
July 2023, EDHEC-Risk Climate paper - R. Rebonato
Many studies have failed to identify a robust and economically significant climate risk premium or climate beta, either at the aggregate or at the sectoral level. The author examines several explanations of why this may be the case and finds that a mispricing of climate risk is the most likely explanation. If this is true, price adjustments will eventually occur, either in a gradual or in an abrupt way. This is a novel source of risk that should be on the radar screen of long-term investors.
Portfolio Losses from Climate Damages: A Guide for Long-Term Investors
November 2023, EDHEC-Risk Climate position paper - R. Rebonato
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.
Look up! A Market-Measure of the Long-Term Transition Risks in Equity Portfolios
November 2023, Scientific Portfolio paper - V. Bouchet, B. Vaucher & B. Herzog
The transition to a low-carbon economy generates new risks for the financial sector. Recent research has investigated the impact of these risks on market prices by constructing dedicated factors. This paper proposes a new climate-transition factor that captures both the sector and intra-sector dimensions of the transition. Rather than adding this factor to a multi-factor model, it proposes to disentangle the effect of climate-transition risks from traditional risks. This approach enables investors to quantify and optimise the amount of risk coming from their exposure to transition sensitive instruments.
Decomposition of Greenhouse Gas Emissions Associated with an Equity Portfolio
October 2023, Scientific Portfolio paper - V. Bouchet
This paper introduce a decomposition method that enables the disentanglement of five factors that influence the emissions of a portfolio. The method can be applied to different climate impact metrics such as emissions intensity, footprint, or absolute emissions. The analysis can be historical or cross-sectional and can help decision makers achieve reduction targets compatible with climate objectives. It can also be used to uncover greenwashing in portfolio decarbonisation.
Investigating the Influence of News Sources and Language Models on Climate Beta Estimates
September 2023, EDHEC-Risk Climate paper - J-M. Maeso & D. O'Kane
Investors need to be mindful of the potential impact of climate change on asset prices. Following pioneering work by Nobel Prize Robert Engle, several papers have examined the link between climate news and equity market returns with a view to isolating "climate beta" that could be used to construct climate-risk hedging portfolios with easy-to-trade assets. In this paper, the authors investigate the use of climate news as a measure of climate risk. Linguistic dictionary, lexical sentiment-based techniques, and state-of-the-art transformer-based models like Chat-GPT are used to capture daily variations in climate change concerns over a 15-year period.
Using Taxonomies to Qualify the Sustainability of Infrastructure Investments
April 2023, EDHEC Infra & Private Assets paper - N. Manocha & R. Arnold
This paper addresses the problem of mapping the infrastructure asset class to the activities of the EU Taxonomy. This mapping process not only tackles a crucial hurdle but also contributes to a deeper understanding of how green taxonomies can be effectively applied to the infrastructure asset class.