Carbon Risk and Investors

Martin Hellmich and Rüdiger Kiesel

Chapter 13 in Carbon Finance:A Risk Management View, 2021, pp 245-268 from World Scientific Publishing Co. Pte. Ltd.

Abstract: In the same vein as societies develop adaptation and mitigation strategies in response to climate change, investors also face similar choices. They can adapt by improving the evaluation of risks and the financial system such that more capital is allocated to low-carbon industries and firms. Or they can mitigate the risk by constructing portfolios that are more robust against carbon risk.In his letter to CEOs, Larry Fink of BlackRock (Fink, 2021) asks all companies to actively mitigate climate risk and initiate measure on a path to net-zero emission. He also puts emphasis on the disclosure of climate-related risk according to the recommendations of the TCFD. Thus, BlackRock can serve as a prominent example of an investor putting effort in adaptation and mitigation.We will start now by sketching a more general picture of institutional investor strategies concerning carbon risks. Then, we will discuss approaches for constructing low-carbon portfolios. We will close with the construction of a low-carbon portfolio.

Keywords: Climate Finance; Carbon Risks; Transition Risks; Emission Certificates; Green Bonds; Carbon Credits; Stress Tests; Machine Learning; Physical Risks; Carbon Markets; Carbon Disclosure; Carbon-Intensity; Commodity Markets; Climate Economics; Climate Risks; Big Data; Emission Certificates; Carbon Investors; Divestment (search for similar items in EconPapers)
JEL-codes: G1 G32 Q5 Q54 (search for similar items in EconPapers)
Date: 2021
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