The tale of two climate risks in Latin America: the perspective of the NGFS climate scenarios

Facilitating Climate-Smart Investments

Net-zero emissions chemical industry in a world of limited resources

Climate risks and FDI

PurposeTo deeply understand the impact of climate change, we examined the effects of both physical and transition risks on a diverse range of property and real estate investments, including REITs, non-Real Estate Investment Trust (REIT) property indices, green real estate, Shariah-compliant assets and bonds. We sought to determine whether the impact of climate risk is similar across these asset classes, how it affects investment prices and volatility and whether certain types of investments (Shariah-compliant and environmental, social and governance-focused) exhibit greater resilience or vulnerability.Design/methodology/approachWe used a quantile-on-quantile regression.FindingsTransition and physical risks generally have a detrimental effect on returns, especially for lower-performing assets across various indices, such as REITs and bonds. However, some high-performing segments within specific REIT indices and green real estate show a degree of resilience, even occasionally correlating positively with physical risk under certain conditions. Shariah-compliant investments exhibit distinct vulnerabilities in returns, especially at higher quantiles, yet they maintain a relative stability in volatility. When it comes to volatility, high transition risk often lessens low-to-moderate volatility but can amplify extreme volatility, particularly in REITs and certain Shariah-compliant indices. Typically, physical risk follows a comparable trend, causing instability in markets that are already prone to volatility, but its repercussions on Shariah-compliant properties are more subtle.Research limitations/implicationsThe implications of this study’s findings are significant for investors, portfolio managers and policymakers alike.Practical implicationsTo adeptly manage the changing dynamics of climate-related risks in the real estate market, investors are advised to integrate climate risk assessments into their portfolio construction and diversification strategies. At the same time, real estate companies must take proactive measures to address both transition and physical risks by investing in adaptation initiatives and developing comprehensive transition plans. Moreover, it is imperative to enhance market transparency and incorporate climate risks into asset pricing, which calls for improved data availability, standardized reporting, and increased investor awareness.Originality/valueTo our knowledge, this study is the first to analyze the differentiated effects of climate risks on a diverse property investment portfolio.

Global economic impacts of climate shocks, climate policy and changes in climate risk assessment

PurposeClimate risks are crucial for non-life insurers due to their significant exposure to both transition and physical risks. The aim of this study is to develop a multi-period model that represents climate risks in non-life insurance, encompassing the impacts of both physical and transition risks as well as their reinforcing dependence. Literature suggests that as physical climate risks increase, the urgency for climate policies intensifies, leading to higher climate transition risks.Design/methodology/approachOur model includes a stochastic transition process affecting assets based on their exposure in climate policy-relevant sectors (green and brown investments) and a dependence structure between this process and liabilities, where the physical risks manifest as an increase in claims.FindingsOur simulation indicates that the choice of the transition process, as well as the consideration of dependencies, has a significant influence on the insurers’ profit, but even more on the probability of ruin. The impact of green versus brown investment strategies varies considerably based on whether dependencies are taken into account or not.Originality/valueThe results of this study are intended to deepen the understanding of the effects of climate risks on non-life insurers and provide a quantitative analysis of the impact of green and brown investing within this framework.

<scp>RMetS</scp> Climate Change Forum 2022: a vision for 2050 and implications for action

New York City Panel on Climate Change 2019 Report Chapter 5: Mapping Climate Risk

Transition risk, physical risk, and the realized volatility of oil and natural gas prices

The Materiality and Measurement of Physical Climate Risk: Evidence from Form 8-K

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.

Toward green central banking: Proposing an augmented Taylor rule

Corporate climate risk management: Are European companies prepared?

Chapter 5: Law and regulation

In recent times, growing concerns about climate change have given rise to various climate-related risks that increasingly impact financial markets. Investors are becoming more aware of the tangible effects of climate change and the regulatory measures aimed at transitioning to a low-carbon economy. Within this context, this study investigates the dynamic co-movements over time and frequency between climate risk indices and the prices of renewable energy stocks and oil. Wavelet analysis is employed using a daily dataset spanning from January 2020 to December 2023. The findings indicate no significant lead-lag relationship between physical climate risk and clean energy stock prices. In contrast, crude oil prices are negatively affected by physical risk in the short term. Regarding transition risk, clean energy assets appear to exert a negative influence, while oil prices exhibit a stronger, long-term association with transition risk. This study offers valuable insights for policymakers and investors, contributing to a deeper understanding of climate risk and supporting more effective risk mitigation strategies in the energy sector.