Developing an evidence base for assessing natural capital risks and dependencies in lending to Australian wheat farms

Farmers are highly dependent on stocks of natural capital, and lenders are in turn exposed to natural capital through their loans to farmers. However, the traditional process for assessing a farmer’s credit risk relies primarily on historical financial data. Banks’ consideration of environmental factors tends to be limited to major risks such as contaminated land liabilities, and to large project and corporate finance, as opposed to the smaller loans typical of the Australian agricultural sector. The relevant risks and dependencies for agriculture vary by sub-sector and geography, and there is a lack of standardised methodologies and evidence to support risk assessment. We provide an evidence base to support natural capital risk assessment for a single sub-sector of Australian agriculture–wheat farming. We show that such an assessment is possible, with a combination of quantitative and qualitative inputs, but the complexity and interconnectedness of natural capital processes is a challenge, particularly for soil health. © 2017, © 2017 Informa UK Limited, trading as Taylor & Francis Group

Stranded Assets: A Climate Risk Challenge, Executive Summary

Over the last few years, the topic of "stranded assets" resulting from environment-related risk factors has loomed larger. These factors include the effects of physical climate change as well as societal and regulatory responses to climate change. Despite the increasing prominence of these stranded assets as a topic of significant interest to academics, governments, financial institutions, and corporations, there has been little work specifically looking at this issue in Latin America and the Caribbean (LAC). This is a significant omission, given the region's exposure to environment-related risk factors, the presence of extensive fossil fuel resources that may become "unburnable" given carbon budget constraints, and the particular challenges and opportunities facing lower-income and emerging economies in LAC. This report includes an extensive literature review, reviews of case studies, in-depth interviews, extensive informal consultation, and a survey instrument to identify gaps in the stranded asset literature. The report builds on work undertaken in 2015 by the Inter-American Development Bank (IDB) on the issue of stranded assets. It aims to provide a deeper understanding of the issue and the existing literature about it, as well as highlight opportunities for future work, especially in LAC

From impacts to dependencies : a first global assessment of corporate biodiversity risk exposure and responses

There is growing awareness that biodiversity loss poses a significant risk to the global economy, but a lack of clarity on what this means for corporations, and how they are responding. This study provides a first quantitative assessment of biodiversity risk exposure across the world's largest listed companies, compared with their adoption of biodiversity policies, through analysis of disclosures from a sample of 11,812 companies from 2004 to 2018. We find that companies have started responding strategically to biodiversity risk, with 29% having adopted a biodiversity policy by 2018. However, around $7.2 trillion of total enterprise value remains exposed to unmanaged biodiversity risk. Companies in sectors with material impacts on biodiversity tend to have high levels of response, but there is poorer responsiveness to material biodiversity dependency risks. A natural-capital-based view (NCBV) of the firm is proposed to theorise how corporations are constrained by both their impacts and dependencies on natural capital. © 2022 The Authors. Business Strategy and The Environment published by ERP Environment and John Wiley & Sons Ltd

Financial Instruments for Decarbonization: Likely Pathways in the Romanian Economy

The article explores which financial instruments have the highest potential to deliver the transition to a low-carbon economy in Romania, given the structure of the national economy. Based on a Scopus comprehensive query resulting in 364 analysed articles on green and sustainable finance in Romania, the paper fills a research gap by looking not only at stakeholders' perception of this emerging field in Romania or by describing different kinds of green financial instruments, but by analysing which instruments are most likely to have the highest leverage and impact to mobilize finance towards decarbonizing the local economy. The banking sector in Romania accounts for 75% of total financial system assets, total net assets in the Romanian banking sector amounting to approx. 140 bio. EUR and dwarfing the Stock Exchange, bonds, European Structural and Investment Funds, etc. While green bonds have seen double digit growths, green loans and other banking instruments (debt denial, etc.) have the highest potential to decarbonize the national economy most effectively

Competition and innovation in the financial sector:Evidence from the rise of FinTech start-ups

This paper provides new evidence on the effects of entry on incumbents’ incentives to innovate by examining the rise of FinTech innovations over the period 2000-2016. We employ machine learning algorithms to classify a large sample of patent applications into five types of FinTech innovations. We then show that greater competition from innovators outside the financial sector increases the probability that incumbent financial firms will innovate. Our identification strategy exploits the variation over time in the share of FinTech patent applications by non-financial start-ups relative to incumbent financial firms, as a proxy for competitive pressures from outside the financial industry. We also find that this increased competition results in a higher number of FinTech patent applications by financial incumbents relative to non-financial ones, especially when the FinTech innovations are more important, as proxied by the number of their future patent citations.Irish Research CouncilOpen Access funding provided by the IReL ConsortiumTo check citing and date details in 6

The city never sleeps: but when will investment banks wake up to the climate crisis?

Using a global dataset of over 840,000 equity, bond and syndicated loan investment banking deals, we build the fossil fuel investment brokerage profile of financial centres worldwide between 2000 and 2018. We also study whether city-level fossil fuel divestment commitments and country-level green banking policies impact the profile of fossil fuel financial centres over our study timeframe. We find that several financial centres shift their fossil fuel investment brokerage profiles substantially, including the asset classes in which they are active. However, we do not find any evidence that this is driven by city-level divestment commitments. In contrast, we find that fossil fuel investment banking brokers situated in financial centres exposed to voluntary green banking policies reduce their fossil fuel financing. This is driven by foreign brokers whose behaviour appears to signal an anticipation of forthcoming mandatory green finance policies

In the name of COVID-19: is the ECB fuelling the climate crisis?

We offer preliminary evidence drawing on a novel dataset of corporate bonds issued in the European energy sector since January 2020 in combination with the European Central Bank’s (ECB) purchases under the Pandemic Emergency Purchase Programme (PEPP) in response to COVID-19. We show that the likelihood of an European energy company bond to be bought as part of the ECB’s programme increases with the greenhouse gas (GHG) intensity of the bond issuing firm. We also find weaker evidence that the ECB’s PEPP portfolio during the pandemic is likely to become tilted towards companies with anti-climate lobbying activities and companies with less transparent greenhouse gas (GHG) emissions disclosure. Our findings imply that, at later stages of the COVID-19 recovery, an in-depth analysis maybe necessary to understand if and if yes, why the ECB fuelled the climate crisis

Financial intermediation in the 21st century: the rise of environmental investing and financial technologies

This thesis seeks to shed light on how the operation of financial markets is linked with environmental outcomes at the regional, national and international level, by exploring the geographical tensions between the spatiality of finance and the scale at which environment-related decision making occurs. A focus on the financial sector cannot overlook the importance of information systems and decision-making processes of financial intermediaries. Hence, a secondary aim of the thesis is to explore the geographical scope of information systems and decision-making process of financial intermediaries, including that of emerging fintech intermediaries. Finally, the thesis is also concerned with explaining the role of environmental policy on the decision making of financial intermediaries, companies and entrepreneurs alike. The four substantive chapters focus on different types of intermediaries and clients, whose geographical scope allows for the exploration of different configurations of the finance – technology – environment nexus. First, the thesis explores how fossil fuel divestment commitments and environmental policies have shaped the geography of capital flows into the oil and gas sector. I find that the total assets pledged for divestment in a given country is negatively associated with capital flows to domestic oil and gas companies, particularly when divestment is led by regional or sovereign governments. Amongst environmental policy instruments, emissions trading schemes and renewables feed-in tariffs have been most impactful in reducing oil and gas sector capital inflows. This study presents the global scope of financial markets and companies through investment banks and the oil and gas sector, which is contrasted with the limits of country level environmental policies and state intervention. Next, I investigate how different types of environmental policies and new regional environmental knowledge affect new venture creation in green (environmental), brown (fossil fuel) and gray (unrelated to natural resources) technologies. I find that entrepreneurs perceive more stringent environmental policies as detrimental to starting a new venture, whereas the creation of new environmental knowledge in regions is highly correlated with the creation of green ventures but not fossil fuel ventures. The analysis also shows that gray entrepreneurs benefit marginally from the creation of new environmental knowledge, suggesting that entrepreneurs across sectors benefit from the implementation of eco-efficiency principles in the evaluation of new venture creation opportunities. The thesis then shifts the focus from entrepreneurs to banks, and how they can operationalise natural capital risk assessments as part of their lending processes. In this example, the lender has a national or regional investment focus, while the environmental risk for their clients can be local, regional, national or even global in nature. I build an evidence base to support natural capital risk assessment for a single sub-sector of Australian agriculture – wheat farming and shows that such an assessment is possible, with a combination of quantitative and qualitative inputs. Finally, the thesis focuses exclusively on the links between finance and technology and shows that financial technology start-up creation is positively related to regional knowledge created in the IT sector and unrelated to regional knowledge in the incumbent financial sector. On the other hand, fintech innovation by financial services incumbents occurs in regions and countries where the clients and high fee earning subsidiaries of incumbents are located, while regional IT or financial sector productivity do not seem to be important in this context. Thus, the thesis presents four different accounts of the environment-finance-technology nexus emphasising how space, place and territory shape financial flows for the low carbon transition, environmental and financial innovation, and ultimately shape the pace at which society progresses towards tackling its most pressing issues

Financial intermediation in the 21st century: the rise of environmental investing and financial technologies

This thesis seeks to shed light on how the operation of financial markets is linked with environmental outcomes at the regional, national and international level, by exploring the geographical tensions between the spatiality of finance and the scale at which environment-related decision making occurs. A focus on the financial sector cannot overlook the importance of information systems and decision-making processes of financial intermediaries. Hence, a secondary aim of the thesis is to explore the geographical scope of information systems and decision-making process of financial intermediaries, including that of emerging fintech intermediaries. Finally, the thesis is also concerned with explaining the role of environmental policy on the decision making of financial intermediaries, companies and entrepreneurs alike. The four substantive chapters focus on different types of intermediaries and clients, whose geographical scope allows for the exploration of different configurations of the finance â technology â environment nexus. First, the thesis explores how fossil fuel divestment commitments and environmental policies have shaped the geography of capital flows into the oil and gas sector. I find that the total assets pledged for divestment in a given country is negatively associated with capital flows to domestic oil and gas companies, particularly when divestment is led by regional or sovereign governments. Amongst environmental policy instruments, emissions trading schemes and renewables feed-in tariffs have been most impactful in reducing oil and gas sector capital inflows. This study presents the global scope of financial markets and companies through investment banks and the oil and gas sector, which is contrasted with the limits of country level environmental policies and state intervention. Next, I investigate how different types of environmental policies and new regional environmental knowledge affect new venture creation in green (environmental), brown (fossil fuel) and gray (unrelated to natural resources) technologies. I find that entrepreneurs perceive more stringent environmental policies as detrimental to starting a new venture, whereas the creation of new environmental knowledge in regions is highly correlated with the creation of green ventures but not fossil fuel ventures. The analysis also shows that gray entrepreneurs benefit marginally from the creation of new environmental knowledge, suggesting that entrepreneurs across sectors benefit from the implementation of eco-efficiency principles in the evaluation of new venture creation opportunities. The thesis then shifts the focus from entrepreneurs to banks, and how they can operationalise natural capital risk assessments as part of their lending processes. In this example, the lender has a national or regional investment focus, while the environmental risk for their clients can be local, regional, national or even global in nature. I build an evidence base to support natural capital risk assessment for a single sub-sector of Australian agriculture â wheat farming and shows that such an assessment is possible, with a combination of quantitative and qualitative inputs. Finally, the thesis focuses exclusively on the links between finance and technology and shows that financial technology start-up creation is positively related to regional knowledge created in the IT sector and unrelated to regional knowledge in the incumbent financial sector. On the other hand, fintech innovation by financial services incumbents occurs in regions and countries where the clients and high fee earning subsidiaries of incumbents are located, while regional IT or financial sector productivity do not seem to be important in this context. Thus, the thesis presents four different accounts of the environment-finance-technology nexus emphasising how space, place and territory shape financial flows for the low carbon transition, environmental and financial innovation, and ultimately shape the pace at which society progresses towards tackling its most pressing issues