Environmental Beta or How Institutional Investors Think about Climate Change and Fossil Fuel Risk

By Brett Christophers. Annals of the American Association of Geographers, 2019

132 citations recorded by the source corpus.

It is widely recognized that to limit the long-term extent of global warming and its socioecological consequences, the world must transition over future decades to a low- or zero-carbon economy. Among the many imponderables relating to this eventual transition is the role of the principal owners of the fossil fuel companies that are primarily responsible for global greenhouse gas emissions—namely, institutional financial investors. The investment behavior of these institutions will substantively shape not only the speed and nature of the economy and society’s transition to cleaner energy sources but also the speed and nature of the global financial system’s own parallel transition to a low- or zero-carbon world. In the wake of the global financial crisis of 2007 to 2009, governments and regulators around the world are increasingly concerned that the latter transition might represent a major potential source of future financial instability. These authorities are calling on institutional investors to effect an orderly and measured transition by fully recognizing the climate-related risks of investment in fossil fuel companies and pricing these risks appropriately. Yet they are doing so in the absence of informed, up-to-date, and meaningful knowledge of how the investment community actually thinks about climate change and fossil fuel risk. This article maps out the key lineaments of this thinking on the basis of an extensive program of interviews with global investment institutions. Contra government and regulator hopes and expectations, this thinking indicates that fossil fuel investment is set to be a long-term locus of excess, not minimal, financial market volatility: of environmental beta.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/1abe5ff6c5819b9735217d804314296a3c289b4e

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

1. Hugues Chenet
2. P. Drummond
3. Nadia Ameli
4. Alexander Bisaro
5. S. Bracking
6. Benjamin Leffel
7. Michael Grubb
8. J. Schleich

In Finance

1. S. Bracking
2. Benjamin Leffel
3. Michael Grubb
4. P. Drummond
5. Hugues Chenet
6. Alexander Bisaro
7. Nadia Ameli

Citations in the corpus

• Climate finance governance: Fit for purpose? (2021, background): “In this type of governance, institutional investors become central in steering markets to more climate inflected pathways (Christophers, 2019).”
• Climate finance and disclosure for institutional investors: why transparency is not enough (2019, background): “Christophers (2019) indeed suggests that investors think about climate change subjectively—meaning imperfectly and individually—thus resulting in different ways of embedding climate risks in investment decisions.”
• Low‐carbon transition risks for finance (2020, unknown): “Christophers (2019) reports and analyses investors’ views.”