Using Climate Data in Financial Decision Making

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In this open licensed seminar from the Centre for Data, Culture & Society, Matthew Brander and Atreya Dey (both University of Edinburgh) present two papers discussing the use of climate data in financial decision making.


What is corporate GHG data actually good for?

Matthew Brander, Senior Lecturer in Carbon Accounting at the University of Edinburgh Business School

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.


A Rising Tide Raises Sovereign Risk: Sea Level Rise and its Impact on Sovereign Credit

Atreya Dey, doctoral researcher in Financial Technology at the University of Edinburgh Business School

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.


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