Using Climate Data in Financial Decision Making
From Roisin O'Brien
Matthew Brander and Atreya Dey (both University of Edinburgh) present two papers discussing the use of climate data in financial decision making.
First Broadcast on 27 October, 2021
Chaired by Dr Galina Andreeva, Business School
Abstracts and Speaker Bios
What is corporate GHG data actually good for? – Matthew Brander
Thousands of companies now routinely disclose their GHG emissions, and financial analysts use this data to tilt investment portfolios or pick stocks. However, it isn’t always clear what analysts want this data for, or how the data should be interpreted. A potentially useful distinction can be made between ‘climate risk conscious’ investors and ‘impact’ investors, and this distinction provides a framework for exploring the meaningfulness of corporate GHG data for investors. This talk presents some initial thoughts on this issue, and areas for future research.
Matthew Brander is Senior Lecturer in Carbon Accounting at the University of Edinburgh Business School. His research interests are in greenhouse gas (carbon) accounting, focusing on the variety of methods and standards that are available, and the appropriate use-context of those methods. He has a particular interest in exploring the distinction between attributional and consequential methods, and applying that distinction to understand the conceptual nature of different carbon accounting methods.
A Rising Tide Raises Sovereign Risk: Sea Level Rise and its Impact on Sovereign Credit – Atreya Dey
The slow yet imminent rise in sea levels due to climate change may erode the financial health of sovereign nations. I investigate whether credit markets are attentive to the impending risk of sea level rise. I find that countries highly exposed to sea level rise (SLR) experience a sharp increase in risk after the 2009 UN Climate Change Conference in Copenhagen. To first measure country level exposure to SLR, I use open-source spatial datasets to develop a novel proxy for granular economic activity. With this measure, I calculate the percent of GDP exposed to SLR for every country in the world. I use a synthetic control methodology to empirically test whether the Copenhagen summit led to an increase of sovereign credit default swap spreads for countries with greater exposure. Sovereign spreads for Vietnam, Belgium, and Egypt at 1-, 5-, 10-, 20-, 30- year terms increase by an average of 28 percent after the event. Less exposed countries experience a smaller premium of around 10-20 percent. Wealthier countries, which have already invested in adaptation to rising sea levels such as the Netherlands, are largely not affected. The results suggest that investors are inaccurately pricing this physical risk in the near term.
Atreya Dey is a doctoral researcher in Financial Technology at the University of Edinburgh Business School. His primary research interests include studying how physical climate risks affect financial markets and supply chain networks. Prior to joining the School, Atreya worked as an economist in the specialised modelling group at Moody’s Analytics in London.