Financial Risk, Innovation and Alternative Pathways to Decarbonising the Energy System in 2050

There is a lot of forward looking work attempting to envisage the decarbonised energy system of the future as reflected with current interest in 'smart grids'. A central tenet behind most visions of the 'smart grids' of the future are the price signals that financial and commodity markets will deliver to facilitate effective and efficient resource allocation. Most of these visions take stylised and static views of financial and commodity markets despite the fact that these markets are experiencing dramatic change due to innovation and regulation. Accordingly, the paper maps the risks associated in the fusion of financial innovation with innovation in the energy system through a theoretical framework that draws on evolutionary models of paradigm shift. Risks to both the financial and energy systems are characterised as either emanating from primary or secondary markets and these are explored in terms of alternative visions of the energy system in the long run

Reconciling WTP to actual adoption of green energy tariffs: A diffusion model of an induced environmental marke

This paper develops a formal model that links the willingness to pay (WTP) literature with the established innovation diffusion literature. This concern arises from an attempt to reconcile the large disparities that have been observed between actual adoption of green energy tariffs and WTP for such tariffs. These disparities have often been attributed to upward response bias and the free rider problem. However, empirical research indicates that other factors have hindered the development of green energy markets, including supply side problems and poor regulation. Using an epidemic diffusion framework our model shows how increasing consumer environmental concern driven by word of mouth and mass media communication channels results in a growing number of people who state they are WTP for green energy. The presence of upward response bias and the free rider problem result in 'feasible adoption' being below stated WTP. Feasible adoption is, in turn, differentiated from actual adoption by the extent of market imperfections. It is concluded that; (1) the potential of such markets may take time to reap and that the low penetration rates of today may reflect a conventional diffusion trajectory and (2); low and stable energy prices appear to be a precondition if consumers are to contribute substantively to the funding of renewables investments through green tariffs.Willingness-to-pay, innovation diffusion, green energy, environmental valuation

Shareholder Activism on Climate Change: Evolution, Determinants, and Consequences

We study 944 shareholder proposals submitted to 343 U.S. firms on climate change issues during 2009–2022. We use logistic and two-stage regression to estimate the propensity for a firm to be targeted or subjected to a vote at the annual general meeting and, for voted proposals, the determinants of that vote. We also examine whether climate-related proposals affect investor returns and how they relate to firms’ future environmental performance and greenhouse gas emissions. Compared to a matched sample, we first find that activists target larger, more carbon-intensive, and less R&D-active firms. Second, voting likelihood is higher for firms with repeated and operations-related proposals and lower pre-proposal environmental ratings. By contrast, disclosure-related proposals are likelier to be negotiated and withdrawn. Third, repeated and operations-related proposals receive higher votes in favor, whereas votes on carbon-intensive firms do not. Fourth, building on the theory that investors act as if they distinguish among the different shareholder proposals based on the expected cost to the firm, we find evidence to support this idea. We find that investors respond negatively to ex-ante costlier proposals, such as those that relate to emissions reduction and target carbon-intensive firms. Fifth, targets’ future environmental performance rating is almost twenty percent higher after a proposal than before compared to the matched sample, whereas emissions do not budge appreciably

Stranded research? Leading finance journals are silent on climate change

Finance research has shaped the modern financial system, influencing investors and market participants directly through research findings and indirectly through teaching and training programmes. Climate change presents major risks to the global financial system as well as new opportunities for investors. Is climate finance an important topic in finance research? We systematically analyse the content of 20,725 articles published in the leading 21 finance journals between January 1998 and June 2015. We find that only 12 articles (0.06%) are related in some way to climate finance. The three elite finance journals (Journal of Finance, Journal of Financial Economics and Review of Financial Studies) did not publish a single article related to climate finance over the 17.5-year period. We repeat our analysis across a sample of 29 elite business journals spanning accounting, economics, management, marketing and operations research, as well as finance. We find a similar dearth of published climate finance research. We consider four possible explanations for this failure of top finance and business journals to engage with climate finance as a research topic. These include methodological constraints and editorial policies. We conclude by arguing why it is critical for climate-related research to be given greater attention and prominence in finance journals