Climate risk and biodiversity exposure

Protected areas are a key instrument for conservation. Despite this, they are vulnerable to risks associated with weak governance, land-use intensification, and climate change. We used a novel hierarchical optimization approach to identify priority areas for expanding the global protected area system that explicitly accounted for such risks while maximizing protection of all known terrestrial vertebrate species. To incorporate risk categories, we built on the minimum set problem, where the objective is to reach species distribution protection targets while accounting for 1 constraint, such as land cost or area. We expanded this approach to include multiple objectives accounting for risk in the problem formulation by treating each risk layer as a separate objective in the problem formulation. Reducing exposure to these risks required expanding the area of the global protected area system by 1.6% while still meeting conservation targets. Incorporating risks from weak governance drove the greatest changes in spatial priorities for protection, and incorporating risks from climate change required the largest increase (2.52%) in global protected area. Conserving wide-ranging species required countries with relatively strong governance to protect more land when they bordered nations with comparatively weak governance. Our results underscore the need for cross-jurisdictional coordination and demonstrate how risk can be efficiently incorporated into conservation planning. Planeación de las áreas protegidas para conservar la biodiversidad en un futuro incierto.

Increasingly complex climate change poses unprecedented risks and challenges. We attempt to analyze the strategic responses of firms in dealing with climate risk and whether green firms outperform brown firms by exploring the relationship between climate risk and firms’ cash flow. To this end, this paper uses the high-dimensional fixed-effects model for empirical analysis based on panel data of Chinese listed firms from Q1 2010 to Q4 2022. We find that firms have the motivation to hold more cash in the face of climate risk, and that brown firms will be more proactive in cash flow management compared to green firms. In addition, there are significant industry and seasonal effects of climate risk on firms’ cash flow. Mechanism tests find that climate risk prompts firms to increase cash flow by forcing them to reduce financial leverage and erode operating costs, as well as by inducing increased media attention to the firm. Heterogeneity analysis shows that the positive effect of climate risk on cash flow is more significant among low digital transformation firms, high financial constraints firms, firms with low managerial myopia, and SOEs. An analysis of the economic consequences shows that climate risk leads firms to be more aggressive in capturing market share, increasing productivity and strengthening ESG performance. The above findings help to enlighten firms on how to manage their risk exposures and adjust their internal governance structures as a way to maintain stable operations in an environment of intensified uncertainty. In brief, this paper highlights the differentiated financial decisions that green and brown firms make in response to climate risk, providing empirical evidence and policy implications for advancing the green transformation of firms.

To analyze the gap between the Baoji population’s climate change risk perception and the scientifically measured intensity, danger degree, vulnerability, and exposure of climate change risk based on the basic elements of risk assessment, this paper combines analytic hierarchy process and the Bayesian network to evaluate the climate change risk perception intensity in Baoji City, aiming at simulating climate change risk scenarios and improving the objectivity of assessment results. Specifically, the simulation of climate change risk scenarios is carried out through the measurement of such basic elements as risk, vulnerability, and exposure perceptions, and an objective evaluation of the public climate change risk perception intensity in Baoji City is made, thereby systematically assessing local people’s perception of climate change risk. The model weights the indices of risk perception, vulnerability perception, and exposure perception by analytic hierarchy process, constructs the Bayesian network according to the causal relationship among the risk perception assessment elements, and calculates the risk perception probability at each level by combining the Bayesian network to get the system perception intensity. The perceived intensity of climate change risk was 0.497, being at a medium level. The result has different reference value in terms of the response to and management of different climate change risk categories, so it needs to be adjusted according to the actual situation of Baoji City. The main factors that affect the risk perception intensity in Baoji City are gender, climate change perception trend, ecological environment deterioration degree, and disaster severity degree. Therefore, the decision-makers can make risk management plans accordingly, which plays an important role in regulating and narrowing the gap between people’s perception of climate change risk and the results of scientific measurement.

The study analyses the strategies Italian farmers use to cope with the risks that face their production. We develop cross-sectional and longitudinal analyses as well as analyses of correlation that underline the main differences between the way farms adapt their structure and management towards risk. The expected output is an analysis of farms’ approach to risk management in relation to the risk exposure. The present study is the result of research conducted by INEA “Research and technical support on natural disasters, climatic and phytosanitary risks in agriculture and related policies”, funded by the Italian Ministry of Agricultural Food and Forestry Policies. The main aim of this analysis is to explore the potential and the limitations of economic tools for climatic risk management in agriculture of new CAP 2013-2020 in relation to farms’ needs, possible or necessary policies and future directions in the context of the Italian experience (National Solidarity Fund for natural disasters in agriculture, legislative decree n. 102/2004). The chosen approach for the analysis of demand considers the climatic risk at the level of farms’ approach to hedging risks in terms of the use of technical tools (agricultural practices, pesticides, fertilizers, irrigation) and economic/financial instruments (insurances, etc.). The results show a preference of technical tools and a strong need of a more integrated policy scheme, arising also from a new system and the potential synergies between risk management tools and other rural development measures of a more structural and management nature. The latter can contribute to a reduction of risk exposure and of the farms’ vulnerability, first and foremost through agro-climatic-environmental measures, production diversification, irrigation infrastructures, technological and management innovations and formation-information-consultancy.

PurposeClimate risk greatly increases the risk exposure of global investments. Both the climate risks of home countries and host countries may affect international investment behaviors. The purpose of this paper is to explore the impact of climate risk and climate risk distance on foreign direct investment (FDI) inflows and outflows. Targeted proposals are provided to promote international economic and trade cooperation and the authors provide suggestions for the FDI strategies of multinational enterprises.Design/methodology/approachThe authors define “climate risk distance” as the difference in climate risks between two countries. This paper uses both a theoretical model and a generalized least squares test to investigate the impact of climate risk distance on FDI from the perspectives of FDI inflows and outflows. In addition, the authors subdivide the samples according to the sign of climate risk distance and rank the FDI share from home country to host country into four groups according to the host country’s climate risk index. Finally, the authors undertake empirical tests with outward foreign direct investment (OFDI) data to support the empirical results.FindingsInvestors from countries with low climate risks have the upper hand due to their competitive advantages, like their skills, trademarks and patent rights, which they can transfer abroad to offset the disadvantage of being non-native. This is generally defined as ownership advantage. The impact of climate risk distance on FDI depends on the sign of climate risk distance. Specifically, host countries with higher climate risks compared with the climate risk levels of home countries may experience insignificant reductions in FDI inflows. For investors from home countries with higher climate risks, they are less likely to invest in host countries with lower climate risks. The results for samples from emerging market economies are shown to be more significant.Originality/valueThis study advances the O (ownership advantage) part of the ownership, location and internationalization (OLI) paradigm by incorporating the climate risk distance between the home country and the host country into the influencing factors of FDI. Both the O part and the L (location advantage, the advantage that host countries offers to make internationalization worthwhile to undertake FDI) part of the OLI paradigm concerning climate risks are validated with FDI and OFDI data.

Climate exposure shows high risk and few climate refugia for Chilean native vegetation

Climate risks are now fully recognized as financial risks by asset managers, investors, central banks, and financial supervisors. As a result, the integration of climate risk metrics into risk management processes is moving up agendas worldwide. In that context, a rapidly growing number of market participants and financial authorities are exploring which metrics to use to capture climate risks, and to what extent the use of different metrics delivers heterogeneous results. This discussion note takes a first step in analyzing the convergence in assessments of climate-related transition risks across metrics providers, based on the ECB corporate bond portfolio. Our findings show that firms’ risk assessments across metrics are fairly heterogeneous but tend to converge on which firms are most and least exposed to transition risks. We also show that the temperature targets and time horizons underlying the metrics matter, although moderately, for the assessment of firms’ risk exposure and that providers using similar methodologies tend to deliver more convergent assessments. Our findings contribute to the growing recognition that asset managers, investors, central banks and financial supervisors can and should use available metrics to better integrate climate risks into risk management and financial supervision.

PurposeThis research investigated Australian property valuers' identification and consideration of physical climate change risks in valuation practice.Design/methodology/approachThirty Australian valuer members of the Australian Property Institute from a variety of specialisations were interviewed. The semi-structured interviews explored climate change risks and the extent of risk investigation and consideration in valuation practice. The analysis utilised the Moser and Luers (2008) climate risk preparedness framework as a lens to evaluate current valuation practice in Australia.FindingsThe analysis reflects that while physical risks are easily identified and engaged with by valuers, correspondingly, there is a lack of understanding of and engagement with, climate change risks. This supports the need for better information sources and guidance to inform valuers of climate change risks and the development of specific mechanisms for the consideration of such risks to be included in valuation processes, practices and reports.Research limitations/implicationsThe research was limited by its sample size and qualitative approach. Therefore, the research is not a representative opinion of the Australian profession; however, the analysis provides the perspective of a range of valuers from across Australia with different valuation specialisations.Practical implicationsThis research has established that valuers have the potential to be prepared to address climate change in their professional capacity, as described by Moser and Luers (2008). However, they are constrained by information communication, access and detail and subsequent market awareness of information on climate change risk exposure on properties. There is a need for further support, guidance, information and tools, as well as awareness-raising, to enable valuers to accurately identify and reflect all risks affecting a property in the process of valuation.Originality/valueThis research provides the first investigation into the consideration of climate change in valuation practice. Property stakeholders—owners, investors, financiers and occupiers—are escalating their climate change risk analysis and reporting for property portfolios and organisations. This research suggests that valuers also need to be aware of the changing dynamics of market reporting and decision-making related to climate change risks to ensure appropriate reflection in valuation practice.

To comprehensively assess the climate risk originating from climate change, this study aims at developing a novel climate adaptation algorithm, representing not only on the basis of Climate Change Adaptation Six Steps (CCA6Steps), but also innovations in climate risk template. The climate risk template is proposed as a climate risk analysis tool based on the procedure of CCA6Steps, including the identification of problems and objectives, the analysis of current and future risks, and the assessment of adaptation options, to identify the relationship between the climate risk components, including hazard, exposure, and vulnerability. An application is implemented to demonstrate the advantages of the proposed algorithm in this study. The results show that the problems and objectives which concern the governance level and stakeholders can be clearly identified by the proposed algorithm. The relationship between climate-related hazards, exposure, and vulnerability of the protected target can also be precisely investigated. Furthermore, the climate adaptation strategies able to mitigate the impact of hazards on the protected target are further discussed in this study. In summary, the proposed climate adaptation algorithm is expected to provide a standard operating procedure and be a useful tool to support climate risk assessment.

Irrigation schemes in the Nariarlé sub-watershed, Nankanbé basin in Burkina Faso are exposed to climatic risks. These risks are accentuated by the combination of several natural, biophysical and anthropogenic factors. The objective of this study is to assess the climate risks of developments in Burkina Faso. The absence of a previous study assessing the risks of the basin highlights the originality of this article. Documentary research and the processing of satellite images served as methodology. This methodology is supported by field surveys of 160 farmers, questionnaires and interview guides. The climatic analysis shows an evolution of minimum and maximum temperatures and a persistence of deficit years. The climate risks identified are: risks of vulnerability to climatic hazards (water stress, soil erodibility, flooding of irrigated areas, heatwaves), risks of exposure (demographic pressure, increase in the level of CO 2 content of developments, economic deficit). Climate risk assessment provides decision support tools, guidance, effective adaptation practices and techniques.

ABSTRACT: Climate risk represents an increasingly vital issue to countries, companies, and institutional investors, making it a reality but not a distant threat to humanity. Considering the effects of climate risks on firms' financial indices and financing options, the study investigates whether climate risk is priced by the capital markets of South Africa. The study used reported carbon emissions as a measure of climate risk of 81 listed companies in the Johannesburg Stock Exchange from 2011 to 2020 to examine whether climate risk is considered and priced by the South Africa capital market. Data was sourced from DataStream database- a global financial and macroeconomic time-series database providing data on equities, stock market indices, currencies, company fundamentals, fixed income securities, and key economic indicators. We used the two-step system Generalized Method of Moments estimation technique that copes with endogeneity concerns to corroborate the effects of climate risk on cost of capital and capital structure. We find that climate risk is priced in both cost of debt capital and cost of equity capital. Specifically, we find that an increase in a firm's exposure to climate risk increases the cost associated with issuing debt and equity capital. We also find that climate risk exposure decreases the debt-equity ratio. Additionally, the study showed that firm size, leverage ratio, capitalization, profitability, and turnover affect both cost of capital and capital structure of listed firms. The study concludes that climate risk is priced in cost of financing in the capital market of South Africa. The study recommends that firms should invest in installing eco-friendly machinery that aligns with changing market expectations in order to reduce their carbon emissions. The study therefore highlights the need for companies to proactively assess and manage climate risks, incorporate climate considerations into their strategic decision-making, and enhance their resilience to climate-related challenges.

This study aims to identify the effect of climate risk on stock market performance in Sri Lanka. As an island, the country is frequently affected by climate change variabilities. Due to the higher climate risk exposure of Sri Lanka, it is highly needed to identify the risk at a prior stage. As, this is the first study in Sri Lanka to identify the climate risk impact on stock market performance the primary objective of this study is to identify the climate risk effect on the All-Share Price Index, Standard and Poor’s SL20 index and 20 industry groups according to the GICS classification. The considered climate risk variables are drought, flood, high wind, heavy rain, landslide, and lightning. The findings of the study revealed there is no significant impact from climate risk variables to the All-Share Price Index, and Standard and Poor’s SL20 index. However, the analysis discovered significant impact of several climate risks to certain specific sectors of CSE such as drought significantly impacts automobiles and components, banking and transportation sectors. At the same time, the high wind is a key factor for food, beverage and tobacco. The drought and high wind influence are significant in sectors like capital goods, utilities, consumer durable and apparel, consumer services, healthcare, equipment and services, materials and household and personal products. As well as drought and lightning have a significant impact on the commercial and professional service sector and energy sector while the diversified financial sector is impacted by drought, high wind and heavy rain. Apart from that, sectors like food and staples, retailing, insurance, real estate and telecommunication are unaffected by any climate risk factor. At the same time, the pharmacy and bio-tech industries are impacted by all the climate risk variables except floods. Ultimately, the study's findings will provide direction to decision-makers including potential investors to consider the climate risk in their decisions making processes.

Perceptions of climate change and occupational heat stress risks and adaptation strategies of mining workers in Ghana

While previous studies mainly focus on the valuation of greenhouse gas (GHG) emissions and climate risk exposure, climate opportunity exposure is less frequently visited in the current literature. We use an international sample from 23 countries that have participated in the CDP. By categorizing climate risks/opportunities into physical, regulatory and other, the study suggests that investors have an asymmetrical valuation for different categories of risks and opportunities. Specifically, investors value climate regulatory risk and other (market‐based) climate risks negatively, but not similarly for recognized climate opportunities. Finally, our findings confirm industry matters for investors' valuation decisions by altering their perceptions of the significance of climate risks and opportunities.

This paper examines the effect of climate uncertainty on the spillover effects across the European conventional and environmental, social, and governance (ESG) financial markets via novel measures of physical and transitional climate risk proxies obtained from textual analysis. Analyzing daily data for stocks in the MSCI Europe ESG Leaders Index and various Euro based ESG bond indexes over the period January 3, 2014–September 30, 2021, we show that the shock transmissions between the conventional and ESG assets are significantly lower during periods of high climate uncertainty, suggesting that ESG investments can offer conventional investors diversification benefits against climate-driven shocks. Further comparing a forward-looking investment strategy conditional on the level of climate risk against the passive investment strategy, we show that investors who are worried about physical climate risks could utilize ESG equity sector portfolios as a diversification tool against physical climate uncertainty. In contrast, ESG bonds are found to be particularly useful in managing transition risk exposures that are associated with policy uncertainty and/or business transitions with respect to environmental policies. The findings have important implications regarding the role of climate uncertainty as a driver of informational spillovers across the conventional and ESG assets with important insights to manage climate risk exposures.