Research

We emphasize and encourage links between academic researchers and practitioners at financial institutions to bring theoretical techniques to bear on real-world issues.

Climate Change and Environmental Risk

Climate change is a critical global concern that presents issues associated with warmer temperatures, increased water scarcity, and more frequent and severe weather events. All these factors can threaten the financial sector and the economic security. The physical risks of climate change present a clear threat to operations, but new investment opportunities and product offerings are also needed to respond to the changing world needs.

GRI is engaged in expanding financial sectors understanding of climate-related risks and specifically in identifying proactive responses.


Climate games: Who’s on first? What’s on second?

In view of the recent turmoil caused by international trade negotiations, we can view climate change policy in a game theoretic setting. In other words, although the major players may benefit from global emission reduction, there is a natural tendency to engage in climate policy as a strategic game. In this report, we study three different climate change games and compare with the outcome of choices by a Social Planner.

Cost-Benefit Evaluation of Investments in Climate Change Abatement

Many of the costs associated with climate change, such as large-scale coastal flooding and long droughts, are predicted to occur decades or even centuries into the future. However, societies have to invest today in order to effectively mitigate and reduce these long-run risks.

Confronting Deep and Persistent Climate Uncertainty

Confronting Deep and Persistent Climate Uncertainty Authors: Gernot Wagner and Richard J. Zeckhauser Abstract Deep-seated, persistent uncertainty is a pernicious feature of climate change. One key parameter, equilibrium climate sensitivity, has eluded almost all attempts to pin down more precisely than a ‘likely’ range that has stalled at 1.5–4.5°C for over thirty-five years. The marginal… View Article

President Trump’s Paris Pullout: What it means for financial institutions

Throughout his campaign for the U.S. presidency, Donald Trump expressed skepticism about climate change and promised to repeal Obama-era climate policies. On June 1, 2017, President Trump made good on one of his biggest climate-policy promises by announcing that the United States would withdraw from the Paris Agreement. This paper discusses the impacts of this decision.

Climate Change and Long-Run Discount Rates: Evidence from Real Estate

In this paper, we estimate the term structure of discount rates for an important risky asset class, real estate, up to the very long horizons relevant for investments in climate change abatement. We show that this term structure is steeply downward-sloping, reaching 2.6% at horizons beyond 100 years. We explore the implications of these new data within both a general asset pricing framework that decomposes risks and returns by horizon and a structural model calibrated to match a variety of asset classes.

Managing Carbon Risk: A Look at Environmentally Conscious Indices

Increasingly, governments around the globe are implementing more stringent climate policies to help stimulate the transition to lower-carbon economies. This transition brings with it both risks and opportunities for the financial sector. In this study, we compare the carbon intensity and performance of ‘green’ equities portfolios (environmentally conscious indices) and traditional market portfolios (market indices).

A Target GDP Approach to Risk and Return in Climate Change Policy

Climate change is widely recognized as a serious risk that requires worldwide governmental action. Failing to act on climate change including the risk to the world’s financial systems by threatening financial resilience and longer-term prosperity.

Climate Change: Why Financial Institutions should take note

Climate change is one of the most significant environmental, economic and social challenges of our time. Download a copy of this report to learn more about this relatively new risk category whose impact on organizations will continue to grow.

Multi-Period MV Approach to Risk & Return in Climate Change Policy

Multi-Period MV Approach to Risk & Return in Climate Change Policy There is increasing public pressure on governments to commit to credible plans to reduce greenhouse gas emissions through carbon taxes, cap and trade or other regulatory systems. The responses of governments to climate change will have large impacts on the economy and on the… View Article

A Financial Approach to Environmental Risk

This project uses the tools of modern finance and risk management to measure and model environmental risks by examining publicly traded environmental portfolios.