Climate Risk Research Articles

Linking Climate Risk to Credit Risk: Evidence from Sectorial Analysis

Linking Climate Risk to Credit Risk: Evidence from Sectorial Analysis

Climate change risk pricing in the European stock market

ABSTRACT Climate risk is the potential risk for societies or ecosystems from the impacts of climate change. Whether financial markets price climate risks is critical to ensuring that the necessary funding flows into environmentally sound projects and that stranded assets risk is adequately managed along a ‘green transition path’. In this paper, we assess climate risks for the European stock market. We show that measures of returns spread of green vs. brown investment reflect climate risk and assets’ exposition to systematic macro-financial risk factors, which should be filtered out to measure climate risks accurately. We show that climate risks are priced by focusing on aggregate, industry, and company-level data. We propose a market-based green rating procedure to evaluate non-transparent and non-disclosing companies for which ESG information is unavailable. We illustrate its implementation using a sample of over 800 non-transparent firms.

Understanding how landscape value and climate risk discourses can improve adaptation planning: Insights from Q-method

Climate change poses significant risks to socio-ecological systems, especially at the local level. Local government climate change adaptation strategies must respond to the physical impacts of a changing climate as well as community perceptions about climate change risks and impacts. However, adaptation strategies often overlook diverse stakeholder perspectives and expectations, potentially leading to ineffective and inequitable outcomes. To build stakeholder support for actions that may be unpopular, honest conversations and debate about policy alternatives are necessary. Using Q-method, we identify different discourses about climate change risk and landscape values among residents of Huon Valley, Lutruwita/Tasmania, and consider how discourses, values, and risk perceptions can inform adaptation planning. Our research revealed four distinct landscape value discourses (“Pristine wilderness”; “Accessible places”; “Rural lifestyle”; and “Coastal connections”). Discourses were differentiated by wilderness preference, prioritization of accessibility, and the significance of industry in the region. We also identified five distinct climate change risk discourses (“Governments must mitigate”; “Individuals must act”; “Community will respond”; “It may be too late”; and “Local government must adapt”). These discourses reveal differing stakeholder perspectives about perceived government responsibility, the prioritization of adaptation over mitigation, and risk appetites versus innate resilience. Results highlight relationships between risk perception and landscape values. If attentive to coupled risk-value discourses, and welcoming of debate about alternative options, policymakers and practitioners could formulate adaptation strategies that better respond to community needs.

Framework for urban flood risk assessment – a hydrological modelling approach: the case of Nilambur, Kerala

ABSTRACT The study has evolved in response to the challenges posed by climate change and rapid urbanization occurring worldwide, which contribute to an increased frequency of natural disasters. It addresses flood hazards in Kerala’s Nilambur urban area, where climate change and rapid urbanization heighten disaster risk. Kerala's coastal location and steep terrain in the Western Ghats increase vulnerability, particularly as one of India’s most densely populated states. The research identifies flood risk zones applying overlay analysis, using data from the 2018 Kerala Floods, to create a flood risk framework responsive to runoff volume and thereby flood susceptibility. Key factors include climatic variables, terrain characteristics like elevation, slope, soil, land-use land-cover including urban density, and hydrological and ecological elements like stream networks and floodplains. These are integrated in the SWAT tool to model flood risks, creating a resilient flood risk assessment framework that combines hydrological and ecological parameters.

Exploring the Interface Between Analyses of the Sources of Vulnerability to COVID-19 and to Climate Change Risks

On February 1st of 2022, Lancet did itself proud by publishing a spectacular paper from the COVID-­‐19 National Preparedness Collaborators (NPC) (Bollyky et al., 2022). More than 100 authors have therein reconfirmed that analysis of COVID shines a light onto the character of societies around the world as they rise to meet the challenges of a significant external force. Moreover, their work contributes to another literature – the ensemble of parallel analyses of how humanity might respond to the existential risks born of climate change, and that is the point of this correspondence.

Substantial Increase in Sub–Daily Precipitation Extremes of Flooding Season Over China

AbstractUnderstanding sub‐daily precipitation extremes (SPEs) can provide scientific insights for taking effective measures to mitigate climate risks. Leveraging gauge observations at hourly precipitation in 2,312 meteorological stations and extreme sub‐daily precipitation indices (ESPIs), we investigate the changes of SPEs in flooding season of 1971–2022 in China. On country scale, the occurrences and intensity of SPEs have significantly increased and even accelerated since the 21st century, suggesting increases in 2010s by 15%–38% compared with that in 1970s. The SPE risks for 20‐year and 50‐year return‐period increased by 2–4 and 8–20 times in 2001–2022 compared with that in 1971–2000, respectively. Over 80% stations are found to have positive trends in all ESPIs. On regional scale, seven sub‐regions experienced significant increases in ESPIs with larger magnitudes in the East China. The enlarged 500‐hPa geopotential height, 700‐hPa pseudoequivalent potential temperature, 700‐hPa specific humidity, saturated vapor pressure and urbanization ratio may be bonded to more SPEs.

Climate Change Risks and Consequences on Growth and Debt-Sustainability in Africa

Abstract Average temperature in Africa has been rising steadily from the baseline of climatology prevailing during 1951–1980. The findings in this paper suggest that real GDP growth would start declining for annual temperature higher than 0.7 °C. About 45 African countries already registered annual temperature rise above 0.7 °C in 2020 underscoring the seriousness of climate change induced risks for long term growth. In addition, frequency of major natural disasters tends to exacerbate political instability and conflict. Combined, these shocks have a direct effect on the sustainability of debt. Using a simple debt dynamics framework, the paper shows that the debt-burden could increase 2.4 times due to climate change induced shocks. In addition, modelling results show that carbon pricing could be an effective way of helping to meet the Nationally Determined Contributions. However, carbon pricing would have negative impacts on energy-intensive industries and increase the prices of the goods and services they provide. There will also be job losses in these industries. The combined effect of these impacts could be reduction in GDP growth and real incomes. It is recommended that part of the revenues generated from the carbon tax could be used to address the negative impacts on vulnerable groups.

Urban Climate Health Risks and Resilience

The effects of climate change health impacts on urban healthcare systems and vulnerable populations are a researched topic with foundations on urban risk management, urban health methodologies, and sustainable urbanization. As climate change is a dynamic and transform-ative global issue the gap between adaptation and mitigation efforts and urban planning relies, among other things, on the limitations of previous studies of risk management structures tailored to the existing strategy to calculate the uncertainties and predict their influence on urban systems and subsystems. Moreover, Although, there is vast documentation on health and urbanization challenges facing climate change impacts, little is known about climate health risks affecting the megacities’ urban poor and the available methodologies to cope with climate health risks in urban environments. Climate and health is a well-researched issue, it is also complex as the methodologies and strategic approach to minimize health risks of climate change are intrinsically contingent on risk methodologies and policy-making processes that are efficient with support of knowledge-based information. This paper emphasizes the need for strategic applications and frameworks on urban health risk management methods that identify potential opportunities, and then manage and take action to prevent adverse health effects. It also emphasizes the probability of events and their consequences, which are measurable both qualitatively and quantitatively

Carbon pricing and the commodity risk premium

This paper examines whether the carbon pricing risk factor is priced in the cross-section of commodity futures. By analyzing unexpected pricing shocks in carbon emission allowances, carbon pricing risk is indeed priced in commodity futures, with a significant positive risk premium. The analysis of carbon pricing risk loadings reveals that individual commodities' sensitivities to carbon pricing risk vary. Additionally, commodity-specific characteristics, such as basis and hedging pressure, impact these risk loadings. Finally, I demonstrate that a portfolio of commodity futures constructed based on carbon pricing beta provides superior out-of-sample hedging performance for climate change risk compared to alternative hedge portfolios using equities or ETFs.

Decadal Trend in Humidex: Cooling and Heat Perception in Ibadan, Southwestern Nigeria

Rising global temperatures have resulted in more frequent and intense weather phenomena like heatwaves, storms, and floods, with heatwaves posing notable risks to environment, agricultural and human health. Many studies use localized thresholds to assess heat indexes, taking into account the unique climate patterns of different regions. The Humidex, which measures thermal discomfort, provides a deeper understanding of how temperature and humidity combine to impact human comfort and environmental stress. Weather data from Ibadan, South-Western Nigeria, provided by the Nigerian Meteorological Agency (NIMET), were analyzed for key climate variables to calculate the Humidex. The Mann-Kendall test determined statistical relevance, while Sen's slope measured trend magnitude. Originally developed by Canadian meteorologists, the Humidex assesses how humidity impacts human comfort. The analysis of temperature, relative humidity, and Humidex trends from 2014 to 2023 shows a clear pattern of heat stress during the dry season (February-April) with some relief during the rainy season (June-August). The Mann-Kendall test and Sen's slope revealed a notable downward trend in temperatures, especially in January, March, June, and November, with decreases ranging from -0.08°C to -0.27°C annually. This cooling trend is mirrored by decreasing Humidex values, particularly in January, March and June, indicating reduced heat stress. High humidity levels during the rainy season are mitigated by the cooling effects of rainfall, leading to lower overall heat perception (Humidex). This relationship between temperature and humidity underscores their combined role in influencing heat stress and comfort levels. The annual variations emphasize the importance of monitoring and managing climate risks in regions prone to extreme heat and humidity. Overall, the decline in both temperature and Humidex suggests a shift toward cooler conditions, which could alleviate extreme heat but also prompt concerns about the broader impacts of these changes on regional climate and agriculture.

Extremes of Temperature and Precipitation Under CMIP6 Scenarios Projections Over Central Hokkaido, Japan

ABSTRACTClimate extreme events are intensifying globally, posing increasing risks across various sectors. Understanding climate extremes' spatiotemporal patterns and responses to climate change is crucial for effective management, especially on a regional scale. This study examines temperature and precipitation extremes, as well as compound dry‐hot events (CDHEs), in the Ishikari River basin (IRB) of Northeastern Japan, an area of significant socioeconomic importance. We focus on spatiotemporal analysis under multiple scenarios of temperature/precipitation extremes and CDHEs based on statistical downscaled datasets from the Coupled Model Intercomparison Project Phase 6. Results indicate that IRB underwent increased trends of extreme hot periods, extreme droughts, and heavy rainfalls during 1985–2014, which are significantly affected by the North Pacific Oscillation and Southern Oscillation Index. Future projections show that warming temperatures and less rainfall shift asymmetrical impacts on temperature and precipitation extremes, expecting increased warm spells and CDHEs but increased wet durations and less heavy rainfalls. Emission scenarios analysis suggests low‐emission scenarios (SSP1‐2.6) could mitigate their exacerbations, especially for CDHEs (decreased by 139%). Moreover, spatial‐pattern analysis reveals regional heterogeneity in temperature and precipitation extremes, with northern mountainous regions more susceptible to thermal extremes and southern plain regions (e.g., Sapporo city) experiencing prolonged drought and CDHEs. This study provides valuable insights into climate risk management and adaptation strategies.

The state of the art and future of climate risk insurance modeling.

This study provides a comprehensive review of the literature on climate risk insurance modeling to identify lessons learned and knowledge gaps to be addressed by future research. These models are increasingly relevant due to the rising losses attributable to climate change. Insurance models estimate risk for different perils and simulate risk-related parameters for insurance schemes, such as premiums and deductibles. Most forward-looking models indicate that climate change and socioeconomic developments highly exacerbate future risk and increase insurance premiums. Various studies recommend charging risk-based premiums to incentivize adaptation efforts that limit this increase in climate risks. Other findings point toward introducing public-private insurance to cope with climate change and enhance risk spreading by introducing insurance purchase requirements or insurance products that cover multiple climate risks. Gaps that we identify in this literature include an underrepresentation of insurance assessments for developing countries and for hazards other than flooding. Additionally, we note a lack of research into insurance for non-agricultural commercial sectors. Furthermore, less than half of the studies take a forward-looking approach by incorporating climate change scenarios, and an even smaller percentage consider socioeconomic development scenarios. This limitation shows that current methods require additional development for assessing the effects of future climate risk on insurance. We recommend that future research develops such forward-looking models, considers using a more refined spatial scale, broadens geographical and hazard coverage, and includes the commercial sector.

IMPLEMENTATION OF CLIMATE-RELATED BUSINESS REPORTING

The International Standard on Climate-Related Disclosures IFRS- S2 is to require an entity to disclose risks and opportunities, that can reasonably be expected to affect the business cash flows, its availability of financing or the formation of the cost of capital in the short, medium and long term. The article examines the ways of information presented in the financial reports of organizations as a result of the prevention of climate change risks by business.

Observed Changes and Projected Risks of Hot–Dry/Hot–Wet Compound Events in China

Compound extreme events can cause serious impacts on both the natural environment and human beings. This work aimed to explore the changes in compound drought–heatwave and heatwave–extreme precipitation events (i.e., CDHEs and CHPEs) across China using daily-scale gauge-based meteorological observations, and to examine their future projections and potential risks using the Coupled Model Intercomparison Project (CMIP6) under the shared socioeconomic pathway (SSP) scenarios (i.e., SSP1-2.6, SSP2-4.5, and SSP5-8.5). The results show the following: (1) The frequencies of CDHEs and CHPEs across China showed a significant increasing trend from 1961 to 2020, with contrasting trends between the first half and second half of the period (i.e., a decrease from 1961 to 1990 and an increase from 1991 to 2020). Similar trends were observed for four intensity levels (i.e., mild, moderate, severe, and extreme) of CDHEs and CHPEs. (2) All the frequencies under three SSP scenarios will show increasing trends, especially under higher emission scenarios. Moreover, the projected intensities of CDHEs and CHPEs will gradually increase, especially for higher levels. (3) The exposure of the population (POP) and Gross Domestic Product (GDP) will be concentrated mainly in China’s coastal areas. The GDP exposures to the CDHEs and CHPEs will reach their highest values for SSP5-8.5, while the POP exposure will peak for SSP2-4.5 and SSP5-8.5, respectively. Our findings can offer scientific and technological support to actively mitigate future climate change risks.

Does gender diversity in corporate boards and executive management teams influence carbon performance? Evidence from Europe

ABSTRACT We examine how gender diversity in both corporate boards and executive management teams influence both procedure-oriented carbon management performance (PCMP) and real carbon emission reduction performance (RCRP) of European listed firms. Drawing on multiple theoretical perspectives, our empirical models employ firm fixed-effects estimators to analyse a large dataset, consisting of 5327 firm-year observations, covering a period of fifteen years. Our findings are three-fold. First, our primary evidence suggests that gender diversity in both corporate boards and executive management teams has a statistically significant positive association with PCMP and RCRP. Second, we provide robust evidence on the link between female directors’ cognitive attributes and PCMP, as well as RCRP. Third, we find that board gender diversity reinforces the positive influence of gender-diverse executive management teams on PCMP and RCRP. Overall, our study results suggest that female directors and executives play complementary roles in influencing and shaping a company's response to global climate risk. Our results are generally robust to controlling for governance mechanisms, alternative measures/estimations and endogeneities. Our findings have implications for policies relating to gender-responsive governance reforms, as well as the integration of gender diversity into firm-level, country-specific and regional frameworks for climate change policies and reforms.

Compromise or struggle: Extreme temperatures and environmental corporate social responsibility in China

This article uses China's A-share listed companies from 2008 to 2020 as a sample to examine the impact of extreme temperatures on environmental corporate social responsibility (ECSR). The results show that extreme temperatures can significantly enhance companies' performance of ECSR. Extreme temperatures primarily compel companies to engage in ECSR activities by increasing the costs of debt financing, reducing income levels, and intensifying government environmental regulations, thereby mitigating the negative impact of extreme temperature events on corporate production and operation activities. Further research found that in SOEs, companies with high government subsidies, and companies with executives with overseas experience, extreme temperatures have a more significant role in promoting ECSR. This article provides a novel perspective and micro-evidence for studying the external driving factors of ECSR, and provides useful enlightenment for managing climate risks and realizing the green and low-carbon transformation of China's economy.

Subchronic elevation in ambient temperature drives alterations to the sperm epigenome and accelerates early embryonic development in mice

Forecasted increases in the prevalence and severity of extreme weather events accompanying changes in climatic behavior pose potential risk to the reproductive capacity of humans and animals of ecological and agricultural significance. While several studies have revealed that heat stress induced by challenges such as testicular insulation can elicit a marked negative effect on the male reproductive system, and particularly the production of spermatozoa, less is known about the immediate impact on male reproductive function following subchronic whole-body exposure to elevated ambient temperature. To address this knowledge gap, we exposed unrestrained male mice to heat stress conditions that emulate a heat wave (daily cycle of 8 h at 35 °C followed by 16 h at 25 °C) for a period of 7 d. Neither the testes or epididymides of heat-exposed male mice exhibited evidence of gross histological change, and similarly, spermatozoa of exposed males retained their functionality and ability to support embryonic development. However, the embryos generated from heat-exposed spermatozoa experienced pronounced changes in gene expression linked to acceleration of early embryo development, aberrant blastocyst hatching, and increased fetal:placental weight ratio. Such changes were causally associated with an altered sperm small noncoding RNA (sncRNA) profile, such that these developmental phenotypes were recapitulated by microinjection of wild-type embryos sired by control spermatozoa with RNAs extracted from heat-exposed spermatozoa. Such data highlight that even relatively modest excursions in ambient temperature can affect male reproductive function and identify the sperm sncRNA profile as a particular point of vulnerability to this imposed environmental stress.

Towards a Greener Future: Sustainable Banking Practices in Bangladeshs Commercial Banks

Green Banking is nowadays the most crucial issues in the financial arena. Globally the financial institutions are trying to accord to conserve the environment. The central bank of Bangladesh also formed some policy regulations for the banks and financial institutions to gain feasible development. The prime objectives of such article toward present the current status of sustainable banking practices of commercial banks in Bangladesh. A questionnaire survey method was used to collect required data about green banking awareness, online banking, greener future, natural environment, ethical and energy efficiency, training for consumer awareness, communication transaction, solar& biogas, green deposits and accounts, sustainability of banking, minimizing greenhouse effects, reducing carbon footprint from banking activities, pollution checkup camps, mitigate the risk of climate change, focuses on saving paper, debit & credit cards practices on 300 employees of different commercial banks. Also secondary data was collected from various articles to learn throughout the green banking implementation. From this research it has been figured out that there is designed green banking practices of merchant banks in Bangladesh. In order to improve the degree of satisfaction, motivation of clients various programs are offered by the commercial banks. This report is not sufficient for developing any conclusion but still the report may be useful for designing any further study to evaluate the green banking facilities provided by the financial institutions in Bangladesh.

Electric Vehicle Import/Export Flows in Maritime Ports: Are Local Stakeholders Monitoring their Arrival?

Within the global climate change risk mitigation frame, automotive OEMs are progressively replacing ICE-powered cars with electric vehicles in their model ranges. This strategic move is deeply impacting every level of their supply chains, including maritime ports. To shed some light, in the absence of relevant academic literature, on how closely local stakeholders are monitoring this evolution, multiple port authorities’ and logistic service providers’ institutional websites, as well as auto industry-related web sources, have been browsed (Q4 2023), looking for comments on the arrival of electric vehicles in North American and European auto ports. Study shows that contexts differ from one region to another, even from one port/one stakeholder group to another, leading to various attitudes ranging from spontaneous early movers to hyper-cautious followers.

Roadmap for implementing climate adaptation innovations in railway

AbstractThe railway is often perceived as an industry where new technology is not utilised to its full potential. However, the future of the railway and its ability to respond to future transportation demands lies in its ability to implement emerging technology. The aim of this research was to propose a system-level innovation roadmap for implementing innovations that can support climate adaptation of railway infrastructure. To achieve the aim of the research, barriers, and enablers for implementing innovations have been explored, identified, and analysed. Two interview studies and a workshop have been conducted. In total, 58 experts from a population with knowledge in railway have been interviewed. The innovation is a decision support system (DSS) enhancing knowledge regarding effects of climate change on railway infrastructure and suggesting climate adaptation measures. The barriers and enablers concerning the implementation of the innovation are related to technology, business models, procurement, infrastructure, regulations, policy, and culture, values, and behaviour. Procurement processes and business models are vital enablers for the introduction of new solutions for a more climate-change-resilient infrastructure. Tendering documentation must include a broader scope of climate-change risk management indicators. A conclusion is that climate adaptation action has a multi-dimension aspect which require various stakeholders to be engaged. This work proposed a holistic system-level innovation roadmap for implementing DSS for climate adaptation of railway infrastructure.