A0347
Title: Measuring climate-related and environmental risks for equities
Authors: Emese Lazar - University of Reading (United Kingdom) [presenting]
Shixuan Wang - University of Reading (United Kingdom)
Jingqi Pan - University of Reading (United Kingdom)
Abstract: Financial regulators and investors are increasingly concerned about the effects of climate change on investments and seek to capture the climate-related and environmental risks of investments. While energy companies have attracted most of the attention due to the contribution of the energy sector to environmental degradation, climate-related and environmental risks actually affect companies in every sector. Novel measures termed climate value-at-risk (VaR) and climate expected shortfall (ES) are proposed to capture the risk attributed to transition risk factors proxied by environmental scores. The average ratio of climate VaR and ES to total risk in various equity sectors are compared, which enables the identification of the sectors in which climate and environmental risk factors contribute most to the total risk. The analysis considers different risk measurements and various significance levels. Findings show the heterogeneity in sensitivity to climate and environmental risk factors in various sectors. The healthcare sector is the least cost-effective in reducing climate-related and environmental risks, and the energy sector benefits most from improving the firm's environmental scores.
