On September 20th, 2024, the ICMA Centre at Henley Business School hosted the third edition of the Climate and Finance Conference, a pivotal event aimed at exploring the intersection of climate change and finance. This conference brought together a diverse group of researchers to discuss the pressing issues and innovative solutions at the nexus of these two critical fields.
The motivation behind organising this conference stemmed from the urgent need to address the financial implications of climate change. As the world grapples with the escalating impacts of climate change, it is imperative for the financial sector to adapt and contribute to sustainable solutions. External drivers such as regulatory pressures, investor demands for sustainable investments, and the increasing frequency of climate-related financial risks have underscored the necessity for such a dialogue. Our goal was to foster a multidisciplinary exchange of ideas that could lead to actionable insights and strategies.
The conference commenced with a welcome address from Professor Dominik Zaum, Pro-Vice Chancellor (Academic Planning and Resource). The sessions were structured to cover a broad spectrum of topics, each shedding light on different aspects of climate finance.
The first session focused on the relationship between climate change and the stock market. Emese Lazar and Shixuan Wang presented their research on measuring climate-related and environmental risks for equities. They provided a framework that allows for the estimation of novel risk indicators such as Climate Value-at-Risk and Expected Shortfall, and discussed the equity sectors most affected by climate risk. This was followed by a presentation by Kevin Seebonn on how financial analysists incorporate climate change into their buy/sell recommendations and price forecasts for single stocks. The study concludes that an increase in climate-related news correlates with lower price targets for companies negatively exposed to climate change. This suggests that analysts are factoring in climate risks when evaluating such firms.
In the second session Miriam Marra discussed how firms with poor biodiversity practices tend to disclose more about their biodiversity policies, particularly if they are riskier and financially unstable, likely to show commitment to biodiversity-responsible creditors. However, this increased disclosure does not necessarily lead to lower debt financing costs. Next, Yongyi Xue examined the challenges firms face in global M&A activities due to climate change exposure. Yongyi and colleagues found a negative relationship between a firm’s climate change exposure and its likelihood of engaging in mergers and acquisitions (M&A). This relationship is explained by increased financing costs and the level of cash holdings.
In the third session Samuel Law and Andrea Miglionico presented their findings on how banks are adapting their lending to support climate resilience. They emphasized the necessity of a broader framework with diverse key performance indicators to effectively transition to a sustainability-focused lending. Alexander Mihailov’s presentation on a global perspective on sustainable economic growth and suggested a visual framework to keep track of sustainability at the country and regional levels leveraging on the well known climate or warming “stripes” developed at the University of Reading.
The final session addressed the risks associated with windstorms and floods. Dhirendra Kumar demonstrated that a simplified loss model for Europe can accurately represent windstorm losses, producing results comparable to those of vendor models and providing insights into future climate losses using climate model simulations. Simone Varotto discussed the financial strain of mortgage defaults in European flood zones, highlighting the critical role of government support and payment relief measures adopted by lenders to limit mortgage default.
Keynote Speech
The conference culminated with a keynote speech by Professor Marcin Kacperczyk from Imperial College, London, on “Carbon Transition Risk.” Professor Kacperczyk emphasised that transition risk is a fundamental factor in the decarbonization process, serving as a means to estimate the financial cost of carbon. This cost can be viewed as a market-based measure akin to a carbon tax. He stressed the importance of consistency between the objective function and measurement in assessing these risks, and also pointed out that it is beneficial to consider risk as a forward-looking concept, which can help in better understanding and managing future uncertainties.
Despite the progress made, he noted that more research is needed to fully comprehend how transition risk interacts with financial markets and drives real economic changes. Additionally, he suggested that exploring the role of transition risk beyond equity markets and identifying its underlying drivers are promising areas for future research.
This insightful speech underscored the complexities and opportunities associated with managing carbon transition risk, highlighting the need for continued exploration and innovation in this field.
Bringing together such a wide array of disciplinary perspectives was both challenging and rewarding. The discussions underscored the complexity of integrating climate considerations into financial decision-making. However, they also highlighted the innovative approaches being developed to tackle these challenges.
In conclusion, the Climate and Finance Conference 2024 provided a platform for meaningful dialogue and fostering a deeper understanding of the critical intersection between climate change and finance. We look forward to continuing this important conversation and driving forward the agenda for a sustainable future.
We hope this summary captures the essence of the conference and the rich discussions that took place. Thank you to all who participated and contributed to making this event a success.
Len Shaffrey and Simone Varotto