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Quantifying climate risk uncertainty in competitive business environments

Author

Listed:
  • Sobehart, Jorge R.

    (Managing Director and Head of Credit and Obligor Risk Analytics, Citi, USA)

Abstract

As the impact of climate change and CO2 emissions gain more visibility globally, there is increased interest in understanding how the industry landscape will be reshaped in response to the changing physical, economic and political environment. This paper introduces an approach for quantifying the risks associated with the release and adoption of competitive products and services for the long-term uncertainty generated by climate risk scenarios. Our approach can be used for assessing the risks of business strategies whose revenues are used for the repayment of obligations in industries affected by climate risk or CO2 emission costs, and for estimating the probability of default on those obligations under different scenarios. Our approach can also help gain insight into the uncertainty of different net-zero emission strategies and into the uncertainty of outcomes due to nonlinearities, synergies and model misspecification.

Suggested Citation

  • Sobehart, Jorge R., 2021. "Quantifying climate risk uncertainty in competitive business environments," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 15(1), pages 26-37, December.
    • Handle: RePEc:aza:rmfi00:y:2021:v:15:i:1:p:26-37
    as

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    More about this item

    Keywords

    Climate risk; transition risk; competitive environments; earnings uncertainty; credit risk; disruptive technologies;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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