The study, conducted within the research chair established by EDHEC Business School and Scientific Beta, introduces an innovative approach to understanding the impact of climate change and climate change policies on global equity valuations. Sensitivity analyses reveal that the severity of the impact on equity markets depends on the pace of abatement, on the precise location of tipping points, and on the continued ability by Central Banks to counter periods of economic distress by lowering rates. The study finds that even in the absence of tipping points, failure to take abatement action can reduce global equity valuation by over 40%.

The inaugural EDHEC-Risk Climate Impact Institute issue of the EDHEC Research Insights supplement to Investment & Pensions Europe analyses climate scenarios, scrutinizes the IPCC RCP/SSP framework, examines the next decarbonization phase, discusses the lack of correlation between internal carbon price disclosure and carbon intensity reduction, explores the materiality of value chain emissions, and investigates how extreme weather events influence mutual fund managers’ investment decisions.

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. Regulators are caught up in the contentious debate between investors and environmental NGOs who favour disclosure and business organisations and politicians representing fossil fuel interests who oppose it. 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.

The authors use an adaptation of a popular Integrated Assessment Model, according to which the carbon intensity, the rate of growth of the population and the cost of abatement technologies all strongly fall with GDP per capita to explore whether this implies that the end-of-century temperature will vary with states of high or low economic output. They find that, despite what they call the 'technological optimism' of the model, high (low) temperature outcomes are strongly associated with high (low) states of GDP or GDP per person. They also find that a robust abatement policy can effectively reduce temperature increases, even along paths of high GDP per person, strengthening the case for aggressive abatement policy.

The authors argue that what is usually referred to as climate 'transition risk' can be more usefully decomposed in an expectation part and a variability around this central value. They show the strong inverse relationship between the expectation component of transition costs and the expectation of physical damages, as well as a method of how to estimate this relationship. Results indicate that the uncertainty in transition costs decreases as the abatement policy becomes more aggressive (and physical damage decreases) but remains large as a fraction of the expectation component.

Sustainable investment funds have blown up in size in the last decade. However, many funds that claim to be sustainable still contain stocks of companies involved in greenhouse gas-intensive industries. In this article, Scientific Portfolio (an EDHEC Venture) researchers present their latest study in which they analyse the impact of the exclusion of these controversial stocks on the performance and risk profile of these funds.

In this paper, the authors 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.

This report is part of the Consolidated Alignment Performance Analytics research project, developed and led by the Institut Louis Bachelier Labs in partnership with Scientific Portfolio (an EDHEC venture), and financed by the French environmental agency ADEME. The results build on the findings presented in the report “The Alignment Cookbook 2 - A technical panorama of the alignment methodologies and metrics used by and applied to the financial sector, with a view to inform consolidated alignment assessments”. This report introduces a framework for conducting sensitivity analyses of design choices in calculating a company's or financial portfolio's implied temperature rise (ITR), highlighting the impact of different carbon budget allocations on decarbonization benchmarks.

The survey revealed significant apprehensions and knowledge gaps among respondents. Concerned investors emphasised the urgent need for better data and information regarding physical climate risks in infrastructure investments. Importantly, the survey confirms that despite the recognised importance of physical climate risk, investors and managers lack sufficient tools and knowledge to assess its impact on their portfolios effectively.

This paper examines the role that green taxonomies play in defining and identifying sustainable infrastructure investments. The urgency of climate change and the global effort to transition to low-carbon economies has seen the development of multiple frameworks, taxonomies, and standards. This report analysed the challenges of using and interpreting an activity-based taxonomy to categorise infrastructure assets as sustainable (or not) and proposes key improvements that can support the applicability of such taxonomies to the infrastructure asset class.

The authors study the impact of unexpected climate shocks on banks' individual and systemic risks. Employing climate risk measures developed using the Billion-Dollar Weather and Climate Disasters data from the National Oceanic and Atmospheric Administration (NOAA) and Dealscan syndicated lending data, they find that climate risk exposure acquired through cross-state lending increases banks' individual and systemic risks. They also find that bank profitability helps offset some of the adverse effects of climate risk. Banks reduce lending and increase loan loss reserves after the experience of an unexpected climate shock.