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Towards Greening Finance: Integration of Environmental Factors in Risk Management & Impact of Climate Risks on Asset Portfolios

Author

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  • Apostolou, Apostolos
  • Papaioannou, Michael

Abstract

It is increasingly realized that financial-asset investors individually are not likely able to affect climate developments significantly, while the financial sector collectively cannot hedge all climate-related risks. Nevertheless, the financial sector could help channel savings into green projects through both equity and bond markets, and thus facilitate divestment from heavy carbon-footprint producers. This paper provides a novel framework for understanding climate-related adaptation, mitigation, and transition risks and outlines a method for valuing these risks in investors’ portfolios. Our proposed comprehensive set up can serve as a call for action to longer-term institutional investors to obtain accurate information on climate-related risks, develop appropriate frameworks for understanding these risks, and regularly value them. We maintain that through improvements in the assessment of risks, financial stakeholders would be able to help better manage climate-related risks and facilitate an easier transition from brown to sustainable green finance.

Suggested Citation

  • Apostolou, Apostolos & Papaioannou, Michael, 2021. "Towards Greening Finance: Integration of Environmental Factors in Risk Management & Impact of Climate Risks on Asset Portfolios," MPRA Paper 106779, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:106779
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    References listed on IDEAS

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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