Climate and Energy Finance Group (CEFGroup) is pleased to announce that its working paper, In Holdings We Trust: Uncovering the ESG Fund Lemons, won the CFA ARX Asia Pacific Research Exchange Award at this year’s New Zealand Finance Meeting (NZFM).
- Presenting author: Dr Sebastian Gehricke
- Co-authors: Mr Lachie McLean, Professor Ivan Diaz-Rainey, Dr Quyen Nguyen, and Dr Renzhu Zhang
- Link to the working paper: HERE
- 2022 NZFM event page: HERE
MORE ABOUT THE PAPER
The authors surveyed asset managers of global equity funds available to Australasian investors to understand how they integrate sustainable practices within the investment decision-making process. Then, the authors compared survey responses to portfolio holdings data to evaluate whether fund managers were as environmentally responsible as they claimed to be. Some highlights:
- Responsible investing was primarily driven by performance and fund flow focused value, rather than ethical values.
- Climate change was the most important ESG sub-theme, followed by corporate behaviour. Interestingly, funds that placed higher importance on climate change, on average, had higher portfolio carbon intensity.
- Lack of understanding of portfolio carbon intensities among fund managers: Only about half of survey respondents were able to provide portfolio-level Scope 1 & 2 emissions intensity. For those that did, there was large underreporting of emissions by some funds.
- Natural capital (including biodiversity) was given low priority by managers.
- Portfolio carbon intensity was significantly higher for respondents that were members of a climate initiative, and not significantly different for those that prioritised climate change themes or engaged in a decarbonisation strategy. Results were not explained by engagement or active engagement.
Climate and Energy Finance Group (CEFGroup)’s recent publication in International Review of Financial Analysis (IRFA), Climate Transition Risk in U.S. Loan Portfolios: Are All Banks the Same?, is now available HERE.
The paper uses a bottom-up, loan-level forward-looking approach to stress test banks’ exposure to climate transition risk (CTR) in syndicated loans. It highlights that:
- Banks vary in CTR, not only due to their exposure to the energy sectors, but also due to borrowers’ carbon emission profiles from other sectors;
- CTR is stable over time, save for a temporary (in some cases) and permanent (in others), reduction after the Paris Agreement;
- From the stress test, the median loss is 0.5% of U.S. syndicated loans, representing a proportional decrease of 4.1% in CET1 capital; and
- Banks’ vulnerabilities are also driven by the ex-ante financial risk of their borrowers more generally, highlighting that climate risk is not independent from conventional risks
CEFGroup PhD candidate, Ling Liao, together with her three teammates, will be presenting their team project entitled “The Role of Carbon Market in Decarbonizing China and NZ” at the inaugural Winds of Change North Asia Virtual Symposium. The symposium is organised by the North Asia Centre of Asia-Pacific Excellence. More info below:
- Registration Link: HERE
- Date and Time: Thursday the 1st of December 2022, 1pm to 4pm New Zealand Time (or 8am to 11am Beijing Time)
- More detail about the participants and projects: See attached document
- More about Winds of Change: HERE
ABOUT WINDS OF CHANGE NORTH ASIA VIRTUAL SYMPOSIUM
The North Asia Winds of Change programme unites postgraduate students from New Zealand and China to explore climate change impacts and resilience strategies by learning from both countries. This is the inaugural North Asia version of the programme, following on from the success of the Latin America CAPE Winds of Change programme focusing on collaboration between New Zealand and Chile.
Fittingly, this first North Asia edition coincides with the 50th anniversary of diplomatic relations between New Zealand and China and illustrates the continued value of this important relationship. The participants will share the results of their collaborative projects, in the areas of water conservation, food waste, carbon markets, marine diversity, and green hydrogen.
CALL FOR PAPERS for a Special Issue on “Green Investing, Green FinTech, and Clean Technology” for the International Review of Economics and Finance
This special issue aims at exploring the interactions between climate change, sustainability, clean technology, FinTech and green investing through rigorous interdisciplinary research from academia and industry. Authors are invited to submit their papers in English through the journal’s submission system by 1st November, 2023.
For more information, please visit IREF – Call for Papers
Climate and Energy Finance Group (CEFGroup) Director, Dr. Ivan Diaz-Rainey, is presenting at the Climate Change, Insurance, Finance and Housing Workshop next Wednesday. Details below:
- Presentation Title: Implications of Climate Change Risk on Residential Property Values and Financial Stability
- Date and Time: Wednesday the 23rd of November, 1:00-1:25 pm New Zealand Time [Note that the workshop runs from 9am to 6pm]
- Registration Link: HERE
- Location: Decima Glenn, Level 3, Sir Owen G Glenn Building, 12 Grafton Rd, Auckland, New Zealand
- Full Program: Climate Change, Insurance, Finance and Housing Workshop
ABOUT THIS EVENT
Join us to hear from industry experts and academics on the implications of climate change on Aotearoa’s housing markets with the introduction of new government policies on managed retreat and adaptation and discuss the future of housing as we face the prospect of financial and insurance retreat. At the conclusion of the event, there will be networking opportunities.
The workshop hosted by Resilience of the Housing Market Research Group, a joint initiative of the University of Auckland – Business School Departments of Property and Commercial Law.
Lunch, morning and afternoon tea will be provided.
A recent NZ government report has identified dozens of communities at serious risk of flooding, with most having little protection in place to prevent flood hazards. In a recent RNZ panel, CEFGroup Director, Professor Ivan Diaz-Rainey, shared his insights on what how climate change would affect property values in flood-risk areas, and what impact flooding could have on insurance and mortgage lending risk.
The full recording is available via the following link: RNZ – The Panel with Verity Johnson and Chris Wikaira (Part 1).
For more than a decade, wealthy nations have rejected official discussions on what is referred to as loss and damage, the term used to describe rich nations paying out funds to help poor countries cope with the consequences of global warming for which they bear little blame.
COP27 is a turning point. For the first time, the issue of ‘loss and damage’ has finally made it onto the official agenda and become one of the dominant themes at the annual climate conference.
CEFGroup’s Director, Professor Ivan Diaz-Rainey, commented on COP27 ‘loss and damage’ financing discussion. Ivan said that the economic damages was huge in just the past decade alone, and expected developed countries to push for funding to come from, and be administered by, a number of different sources including the private sector. Ivan said time will tell whether promises by rich countries actually eventuate.
CEFGroup’s Director, Professor Ivan Diaz-Rainey, had an interview with NZ Heralds this Tuesday. He shared his concerns re how climate risks affects the New Zealand housing market, and how this would pose risk to the country’s economy.
Diaz-Rainey and his team are exploring the threat themselves, in the Marsden Fund-supported project that involves developing new models to test property impacts against.
For more information, visit: NZ Herald – Climate Change: NZ Banks, Homeowners Exposed to Rising Flood Risk and the STRAND Marsden Fund Project’s home page.
CEFGroup’s Professor Ivan Diaz-Rainey and Dr Quyen Nguyen presented to Stanford University‘s Sustainable Finance and Investment Seminar today. They introduced how transition risk is measured and highlighted associated challenges with particular focus on corporate carbon footprints,
Diaz-Rainey and Nguyen showed that the application of machine learning algorithms to fill the carbon data gaps lead to improved prediction accuracy especially in Scope 1 and Scope 2 emissions. For Scope 3 emissions, firms’ voluntary disclosures have measurement divergence and incomplete composition problems, and prediction accuracy is primarily limited by low observations in particular categories.
Finally, they used actual and predicted corporate carbon footprint data to examine US banks’ exposure to climate transition risk using a bottom-up, loan-level methodology incorporating climate stress test based on the Merton probability of default model and transition pathways from the Intergovernmental Panel on Climate Change.
The presentation drew from several research projects of Diaz-Rainey and Nguyen, including their work with EMMI.
For more information, visit HERE.
For Stanford Precourt Institute for Energy’s upcoming events, visit HERE.
CEFGroup Deputy Director, Dr Sebastian Gehricke, spoke at the Sharesies Shared Lunch Podcast today. Details below:
- Date and Time: Thursday 13th October 2022, 12:15pm-1:15pm New Zealand Daylight Time
- Recording available HERE
- Description: Demand is ramping up for investments to meet environmental, social and governance standards. But is the impact an investor is hoping to achieve the same as a fund will deliver? ESG can take many guises so what really makes an impact? Sharesies discussed this dilemma and much much more with Dr Sebastian Gehricke from Otago University’s Climate & Energy Finance Group.
Shared Lunch is a conversation with experts, CEOs, and you. Each week, Sharesies alternates between an interview with a company leader and an industry deep dive. Episodes are hosted by BusinessDesk journalists including Frances Cook and Dan Brunskill.