IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/106779.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/106779/1/MPRA_paper_106779.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Robert F Engle & Stefano Giglio & Bryan Kelly & Heebum Lee & Johannes Stroebel, 2020. "Hedging Climate Change News," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1184-1216.
    2. Mrs. Mai Farid & Mr. Michael Keen & Mr. Michael G. Papaioannou & Ian W.H. Parry & Ms. Catherine A Pattillo & Anna Ter-Martirosyan, 2016. "After Paris: Fiscal, Macroeconomic and Financial Implications of Global Climate Change," IMF Staff Discussion Notes 2016/001, International Monetary Fund.
    3. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    4. Editorial, 2020. "Covid-19 and Climate Change," Journal, Review of Agrarian Studies, vol. 10(1), pages 5-6, January-J.
    5. Cameron Hepburn & Brian O’Callaghan & Nicholas Stern & Joseph Stiglitz & Dimitri Zenghelis, 2020. "Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change?," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 36(Supplemen), pages 359-381.
    6. Cameron Hepburn & Brian O’Callaghan & Nicholas Stern & Joseph Stiglitz & Dimitri Zenghelis, 0. "Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change?," Oxford Review of Economic Policy, Oxford University Press, vol. 36(Supplemen), pages 359-381.
    7. Patrick Bolton & Morgan Despres & Luiz Awazu Pereira da Silva & Frédéric Samama & Romain Svartzman, 2020. "The green swan," BIS Books, Bank for International Settlements, number 31.
    8. Mai Farid & Michael Keen & Michael G. Papaioannou & Ian W.H. Parry & Catherine A Pattillo & Anna Ter-Martirosyan, 2016. "After Paris; Fiscal, Macroeconomic and Financial Implications of Global Climate Change," IMF Staff Discussion Notes 16/01, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Agarwala, Matthew & Burke, Matt & Klusak, Patrycja & Mohaddes, Kamiar & Volz, Ulrich & Zenghelis, Dimitri, 2021. "Climate Change And Fiscal Sustainability: Risks And Opportunities," National Institute Economic Review, National Institute of Economic and Social Research, vol. 258, pages 28-46, November.
    2. Matthew Agarwala & Matt Burke & Patrycja Klusak & Kamiar Mohaddes & Ulrich Volz & Dimitri Zenghelis, 2021. "Climate Change and Fiscal Responsibility: Risks and Opportunities," Working Papers 008, The Productivity Institute.
    3. Patrycja Klusak & Matthew Agarwala & Matt Burke & Moritz Kraemer & Kamiar Mohaddes, 2023. "Rising Temperatures, Falling Ratings: The Effect of Climate Change on Sovereign Creditworthiness," Management Science, INFORMS, vol. 69(12), pages 7468-7491, December.
    4. David Klenert & Franziska Funke & Linus Mattauch & Brian O’Callaghan, 2020. "Five Lessons from COVID-19 for Advancing Climate Change Mitigation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 76(4), pages 751-778, August.
    5. Paul Malliet & Frédéric Reynès & Gissela Landa & Meriem Hamdi-Cherif & Aurélien Saussay, 2020. "Assessing Short-Term and Long-Term Economic and Environmental Effects of the COVID-19 Crisis in France," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 76(4), pages 867-883, August.
    6. Shaikh Eskander & Sam Fankhauser & Joana Setzer, 2021. "Global Lessons from Climate Change Legislation and Litigation," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 2(1), pages 44-82.
    7. Anand, Paul & Blanchflower, Danny & Bovens, Luc & De Neve, Jan-Emmanuel & Graham, Carol & Nolan, Brian & Krekel, Christian & Thoma, Johanna, 2020. "Post-Covid 19 economic development and policy: submitted as recommendations to the Scottish economic recovery group," LSE Research Online Documents on Economics 105023, London School of Economics and Political Science, LSE Library.
    8. Rolando Fuentes & Marzio Galeotti & Alessandro Lanza & Baltasar Manzano, 2020. "COVID-19 and Climate Change: A Tale of Two Global Problems," Sustainability, MDPI, vol. 12(20), pages 1-14, October.
    9. Karmellos, M. & Kosmadakis, V. & Dimas, P. & Tsakanikas, A. & Fylaktos, N. & Taliotis, C. & Zachariadis, T., 2021. "A decomposition and decoupling analysis of carbon dioxide emissions from electricity generation: Evidence from the EU-27 and the UK," Energy, Elsevier, vol. 231(C).
    10. Blackaby, David H. & Drinkwater, Stephen & Robinson, Catherine, 2020. "Regional Variations in the Brexit Vote: Causes and Potential Consequences," IZA Discussion Papers 13579, Institute of Labor Economics (IZA).
    11. Kraemer-Eis, Helmut & Botsari, Antonia & Gvetadze, Salome & Lang, Frank & Torfs, Wouter, 2020. "European Small Business Finance Outlook 2020: The impact of COVID-19 on SME financing markets," EIF Working Paper Series 2020/67, European Investment Fund (EIF).
    12. Maruf Rahman Maxim & Kerstin K. Zander, 2020. "Green Tax Reform in Australia in the Presence of Improved Environment-Induced Productivity Gain: Does It Offer Sustainable Recovery from a Post-COVID-19 Recession?," Sustainability, MDPI, vol. 12(16), pages 1-18, August.
    13. Srivastav, Sugandha & Rafaty, Ryan, 2021. "Five Worlds of Political Strategy in the Climate Movement," INET Oxford Working Papers 2021-07, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    14. Tilsted, Joachim Peter & Bjørn, Anders & Majeau-Bettez, Guillaume & Lund, Jens Friis, 2021. "Accounting matters: Revisiting claims of decoupling and genuine green growth in Nordic countries," Ecological Economics, Elsevier, vol. 187(C).
    15. Polzin, Friedemann & Sanders, Mark, 2020. "How to finance the transition to low-carbon energy in Europe?," Energy Policy, Elsevier, vol. 147(C).
    16. Philippe Le Billon & Païvi Lujala & Devyani Singh & Vance Culbert & Berit Kristoffersen, 2021. "Fossil fuels, climate change, and the COVID-19 crisis: pathways for a just and green post-pandemic recovery," Climate Policy, Taylor & Francis Journals, vol. 21(10), pages 1347-1356, November.
    17. Samson Mukanjari & Thomas Sterner, 2020. "Charting a “Green Path” for Recovery from COVID-19," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 76(4), pages 825-853, August.
    18. Angela Köppl & Margit Schratzenstaller, 2022. "Macroeconomic Effects of Green Recovery Programmes. Conceptual Framing and a Review of the Empirical Literature," WIFO Working Papers 646, WIFO.
    19. Peter Hemmings & Michael Mulheron & Richard J. Murphy & Matt Prescott, 2021. "Investigating the Impact of COVID-19 Disruption on the Decarbonisation Agenda at Airports: Grounded or Ready for Take-Off?," Sustainability, MDPI, vol. 13(21), pages 1-25, November.
    20. Pamela Mcelwee & Esther Turnout & Mireille Chiroleu-Assouline & Jennifer Clapp & Cindy Isenhour & Tim Jackson & Eszter Kelemen & Daniel C Miller & Graciela Rusch & Joachim H Spangenberg & Anthony Wald, 2020. "Ensuring a Post-COVID Economic Agenda Tackles Global Biodiversity Loss," Post-Print halshs-02954370, HAL.

    More about this item

    Keywords

    Green Finance; Climate; Investors Portfolios;
    All these keywords.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:106779. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.