Press review
ESG Investor
" (...) Whether they are actively engaged with carbon-intensive firms or not, many asset owners have struggled to alight on scenario analysis frameworks that offer realistic and reliable readings of climate change’s impact on the value of their equity portfolios. Faced with the many uncertainties involved in bringing high-level impacts down to the asset level, approaches built on traditional finance sector methodologies and assumptions have frequently underwhelmed investors by seemingly underplaying the financial impacts and existential risks that temperature rises pose to society. A paper from Riccardo Rebonato, Scientific Director of the EDHEC-Risk Climate Impact Institute, may provide a more credible – if sobering – alternative. Rebonato employs a fully probabilistic approach to address the uncertainties arising from the physical and economic impacts of climate change – also integrating economic output, transaction costs and physical damages, and incorporating state-dependent discounting. The outputs may cast a shadow, with global equity valuations potentially crashing by 40% if abatement remains at historic rates – even in the absence of tipping points. But at least the EDHEC approach delivers on investors’ desire to bring together the financial and the physical. (...)"
2024
