Environment impacts on business and markets

The challenge

The transition to net zero emissions will require the mobilisation of significant investment in new capital equipment and infrastructure. Governments do not have the capacity to do this alone, and society will rely on private capital to fund the transition. However, investors are wary of making large investments in long-lived assets because of the risks posed by the transitioning economy as well as by climate change – more extreme weather events, higher ambient temperatures, changing rainfall patterns. Investors need new tools to assess these risks.

 

Why this research is valuable

With an end to stationarity – where the past is no longer a reliable pointer to the future – and the influence of nonlinear dynamic processes in the climate system, traditional methods of managing risk are no longer fit for purpose. Pricing risk in these circumstances in very challenging. We are exploring new methods and metrics to measure the impact of climate change and of the transitioning economy on businesses; methods which are transparent, robust, useful and auditable.

 

Research themes

  1. How can the science of climate change and climate models be used to support business and investors to make decisions that mitigate their own risks from the accelerating impacts of climate change?
  2. How are companies and investors measuring their transition to a low carbon economy? Are the claims made towards progress on net-zero real?
  3. What role does accounting have to play in the management of these physical and transition risks? Can the preparers of annual reports be expected to make use of the outputs of climate models and to then translate this financial information? And who audits this information? Can auditors be expected to do so?
  4. If business, insurers, banks and investors mitigate their own risks, what does this mean for society as a whole? Are such decisions in the best interests of society?

 

Want to know more?

Business risk and the emergence of climate analytics