The conference is going to take place at
Aula Magna, Faculty of Law, Egyetem tér 1-3., district 5, Budapest, Hungary, H-1053.
We propose a new methodology to build portfolios that hedge the economic and financial risks from climate change. Our quantity-based approach exploits information on how mutual fund managers trade in response to idiosyncratic changes in their climate risk beliefs. We exploit two types of idiosyncratic belief shocks: (i) instances when fund advisers experience local extreme heat events that are known to shift climate hange beliefs, and (ii) instances when fund managers change the language in shareholder disclosures to express concerns about climate risks. We use the funds’ observed portfolio changes around such idiosyncratic belief shocks to predict how investors will reallocate their capital in response to aggregate climate news shocks that shift the beliefs and asset demands of many investors and thus move equilibrium prices. We show that a portfolio that is long stocks that investors tend to buy after experiencing negative idiosyncratic climate belief shocks, and short stocks that investors tend to sell, appreciates in value in periods with negative aggregate climate news shocks. Our quantity-based portfolios have superior out-of-sample hedge performance compared to portfolios constructed using existing alternative methods. The key advantage of the quantity-based approach is that it learns from rich cross-sectional trading responses rather than time-series price information, which is particularly limited in the case of newly emerging risks such as those from climate change. We also demonstrate the versatility of the quantity-based approach by constructing successful hedge portfolios for aggregate unemployment and house price risk.
Scenario analysis and stress testing is becoming more important for internal risk management and being in the focus of regulators across the globe. It is a useful tool for understanding the strategic implications and assessing the impact from climate related risks and opportunities. In this presentation, we provide a general insight in the related terminology, key challenges and regulatory implications.
The presentation will focus on Citi’s approach to Sustainability and ESG. In particular, I plan to focus on: (i) Citi’s commitment to Net Zero emissions by 2050 (ii) Sustainable Progress Strategy (iii) Environmental & Social Risk Management & Responsible Business. ESG and sustainability are integral to almost every part of the bank and there are many other initiatives that could be mentioned. Furthermore, each of Citi’s businesses will have their own approach for integrating ESG into the strategy.
It is widely recognized that the world needs to reduce its net emission of greenhouse gases to zero by 2050 to maximize the likelihood of achieving the objective of the Paris Agreement. Although climate risk management is not yet widespread among investors or fully standardized by regulation, in this talk we will attempt to show how the financial industry started thinking about the net-zero transition. We will walk through case-studies to shed light on the most important concepts relating to financial portfolios’ impact on global warming, as well as their risks arising from climate change.
Financial regulators, lead by the Bank of England and the European Central Bank are setting the trend in the assessment of climate-related financial risks, by incentivizing banks to assess their climate-related risks using climate-scenario analysis. As these stress tests are focusing on the banking book, credit risk from lending activities is the most important focus. Such credit risk is also relevant to other financial institutions that hold corporate debt, as climate change may cause rating downgrades and a corresponding widening in spreads. In this presentation I show how MSCI’s bottom-up climate scenarios can shed light on the impact of climate change on default probabilities and ratings migrations.
In this talk the focus is on the multivariate peaks-over-threshold models, that can be used in modelling extreme climatic events. In the first part the methodological aspects are shown, based on the recent papers of Rootzen and his co-authors. The second half is devoted to the applications, where the basis is the Copernicus climate data set, which is the result of reanalysis and forecast for the period 2011-2040. Both precipitation and temperature-based weather indicators are considered. Suitably modified GANs provided simulations for modelling the extremes. Coverage regions for the relevant quantities are also shown.
Program committee:
Local organisers:
email: riskconf@ttk.elte.hu
The main sponsor is This workshop is also supported by