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The Climate Finance Product Scanner for retail investors and banks (KliFin-Scanner) is developing a questionnaire on non-financial objectives for retail investors. The questionnaire will enable retail investors to create an investment profile based on their individual extra-financial objectives. This can then be matched to financial products. The questionnaire and matching software will be integrated in a website available to all retail investors in Germany. It will be open-source and available as white label solution to be able to be integrated into the infrastructure of banks. The project runtime is from 1 January 2018 to 30 June 2020.
The project Aiming for Impact funded by the KR Foundation and the French environmental agency ADEME puts the impact of investment-related climate actions on the agenda. So far, most actions focus on requesting better disclosure of company activities, and are likely to have only marginal impacts on investment plans.
2016 saw the official launch of the SEI Metrics Projects providing a free and open-source portfolio test for listed equity portfolios. Over 200 institutional investors around the world have signed up to test their portfolios, including large asset managers, pension funds, insurance companies, banks, and sovereign wealth funds. Since its launch, over 2,000 portfolios have been tested for 2°C alignment with over $3 trillion in assets under management.
A key challenge to assessing long-term and climate-related risks involves what Mark Carney, the Governor of the Bank of England, called “the tragedy of the horizon”. Long-term liabilities and assets face a ‘valley of death’ in terms of the time horizons underlying capital allocation decisions in financial markets. As a response, we have initiated the ’Tragedy of the Horizon’ research program to quantify time horizons in the investment chain and elevate long-term risk assessments in financial markets.
2016 saw the official launch of the Energy Transition Risk project (ET Risk), a EUR2.2 million project involving S&P Market Intelligence, S&P Dow Jones Indices, Oxford University, Kepler-Cheuvreux, CO-Firm, I4CE, and the Carbon Tracker Initiative. The project seeks to develop the toolbox of energy transition risk assessment – reference scenarios for financial analysis including a 2°C scenario analysis, ET risk data, as well as financial models. The project is funded by the European Commission H2020 programme.
The International Award on Investor Climate-related Disclosures (2° Invest Award) is an initiative organized by the French Ministry of Environment, Energy and the Sea, the Ministry of Finance and Economy and the 2° Investing Initiative. The award is designed to enable the fostering of innovation and promotion of existing best-practices in climate disclosure aligned with the requirements of Article 173-VI of the Energy Transition for Green Growth Law. […]
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This report provides guidelines to build an adverse climate scenario that can be used by financial supervisors as inputs into either traditional or climate-specific stress-tests of regulated entities. The report has been designed to cover the key metrics and indicators found in traditional stress-tests, integrating both risks associated with the transition to a low-carbon economy as well as physical risks in a +4°C / +6°C world. The report provides both insights into key indicators needed in the context of climate stress-tests or scenario analysis, the values they would take in the context of transition risk and physical risk analysis based on the existing literature, options for modelling these indicators moving forward, and example applications developed by the 2° Investing Initiative.
Financial market participants have been recently in the spotlight when it comes to climate change. After years of pressure by the divestment campaigns, targeted by regulators and building internal capacity, the investment community has embarked to address climate change with their investments.
There is, however, still a bit of confusion when investors talk about “decarbonization”. Some refer to decarbonizing their portfolios and mean de-risking them against the regulatory and physical effects of climate change. Others refer to decarbonizing the real economy and mean the impact that their investments can have on the climate.
This paper is addressing the latter: How can investors have an impact on the climate across different asset classes. This will be discussed for multiple forms of equity investment instruments, such as listed equity, Private Equity, Venture Capital and real asset investments. It will also cover debt investment instruments such as bonds and loans.
June 2018: While the discussion of bond markets has largely focused on the green bond space, which currently only represents a marginal share (<0.5%) of outstanding bonds, this discussion paper focusses on creating a broader understanding of the interface between climate goals and bonds.
May 2018: This new discussion paper aims to pave the way for the development of a framework for assessing and moving forward the “contribution of green bonds to scaling up the investments in green projects”. The paper focuses on the case of ‘Use-of-Proceeds Green Bonds’ (UoP GB) that represent 95% of the market in 2016. It discusses the link between
increasing investment in UoP-GB on the one hand, and the growth of investments in green projects by issuers on the other hand, suggesting how this approach can be enhanced to achieve further impact.
May 2018: Our new working paper “The bigger picture” shows that under optimistic assumptions around breakthrough technologies, oil demand could drop by 50% in only 22 years. A combination of shared economy, 3D printing, autonomous vehicles, nanotechnologies, and artificial intelligence, among others, could shave around 30 million barrels per day off of global oil demand. Once you add the ‘traditional’ assumptions around the effects of electric vehicles and the end of oil in the power sector, oil demand could drop to 47 million barrels per day by 2040.
The paper builds on a comprehensive literature review of the potential effects of breakthrough technologies, building on the optimistic assumptions founds in academic literature, as well as research by industry experts (McKinsey). Squarely in the realm of the possible, the analysis represents an alternative vision of what an oil demand crash could look like if technology disruption materializes. Our objective in this paper is not to forecast, but rather to show where optimistic technology assumptions lead the oil sector, providing the potential basis for alternative stress-testing frameworks for fossil fuels.