Low‐carbon transition risks for finance

The transition to a low‐carbon economy will entail a large‐scale structural change. Some industries will have to expand their relative economic weight, while other industries, especially those directly linked to fossil fuel production and consumption, will have to decline. Such a systemic shift may have major repercussions on the stability of financial systems, via abrupt asset revaluations, defaults on debt, and the creation of bubbles in rising industries. Studies on previous industrial transitions have shed light on the financial transition risks originating from rapidly rising “sunrise” industries. In contrast, a similar conceptual understanding of risks from declining “sunset” industries is currently lacking. We substantiate this claim with a critical review of the conceptual and historical literature, which also shows that most literature either examines structural change in the real economy, or risks to financial stability, but rarely both together. We contribute to filling this research gap by developing a consistent theoretical framework of the drivers, transmission channels, and impacts of the phase‐out of carbon‐intensive industries on the financial system and on the feedback from the financial system into the rest of the economy. We also review the state of play of policy aiming to protect the financial system from transition risks and spell out research implications

The thesis of "doux commerce" and the social licence to operate framework

The "doux commerce" thesis holds that commerce acts as a civilising force, contributing to the advancement and well-being of societies by inculcating certain core moral values in individuals (such as honesty, tolerance and fair-dealing). This idea has a venerable history. However, I suggest that it faces a particular challenge in the current era in light of examples of systemic misbehaviour by global companies. This paper explores the nature of this challenge, taking the events around the financial crisis of 2007-8 as a case study, and suggests that if we are to preserve the idea that commerce contributes to the common good then greater mechanisms of constraint on the worst excesses of business behaviour will be needed. In particular, I argue that we must recognise the need for all firms to have a social purpose and suggest that the ‘social licence to operate’ framework, familiar from the mining and extraction sectors, could be used to provide crucial leverage on the behaviour of multinational firms

Financial Turmoil in the Banking Sector and the Asian Lamfalussy Process: The Case of Four Economies

This paper investigates the prevailing financial regulatory structures and impact of the current financial turmoil on banking performance in four Asian economies: the People's Republic of China (PRC); Hong Kong, China; Singapore; and Taipei,China. Both the PRC and Hong Kong, China operate under a fragmented financial regulatory structure, while Singapore and Taipei,China have integrated structures. We examine the role of an integrated financial regulatory structure in helping financial institutions mitigate the impact of the financial crisis, using financial indicators of banks' capital structure and operating performance in these four economies between 2003 and 2008. Our analysis of the indicators reveals that banking performance under a fragmented financial regulatory structure is not worse than under integrated regulation. This implies that financial regulatory structure is not the main reason why Asian financial institutions suffered only limited losses from the current global financial crisis. However, given the growing complexity of the global financial system, and the relative weakness of current financial regulatory structures in Asia, this paper suggests that East Asian governments should refer to the Lamfalussy Process in the European Union and set up an Asia Financial Stability Dialogue to facilitate policy coordination for regional financial sector stability and development

Hydrogen-induced cracking of 500 HBW steels studied using a novel tuning-fork test with integrated loadcell system

Abstract Hydrogen embrittlement is a well-known problem with high-strength steels. An important aspect of hydrogen embrittlement research is the effect of the prior austenite grain (PAG) structure on hydrogen-induced fracture. The microstructural anisotropy of PAG structure depends on the steel manufacturing process. In this study, 500 HBW martensitic steels with different PAG structures are investigated with a novel tuning-fork test that utilizes an integrated loadcell system. The loadcell clamping system is used during hydrogen charging, allowing tracking of the applied force throughout the tests, which enables detection of separate phases of cracking and time-to-fracture. The elongated PAG morphology produces different results depending on the crack path direction in relation to the rolling direction, whereas the equiaxed PAG morphology does not manifest an orientation dependence. Depending on the PAG shape, also the fracture morphology differs. Time-to-fracture results show that elongated grain morphologies with transgranular quasi-cleavage crack propagation are more beneficial against hydrogen-induced fracture than equiaxed grain structure with intergranular crack propagation. These results demonstrate that the shape of the PAG structure plays an important role in the crack propagation mechanism and that it is important to consider the possible direction of hydrogen-induced cracks in the final structural applications