Climate risk assessment of the sovereign bond portfolio of European Insurers

In the first collaboration between climate economists, climate financial risk modellers and financial regulators, we apply the CLIMAFIN framework described in Battiston at al. (2019) to provide a forward-looking climate transition risk assessment of the sovereign bonds’ portfolios of solo insurance companies in Europe. We consider a scenario of a disorderly introduction of climate policies that cannot be fully anticipated and priced in by investors. First, we analyse the shock on the market share and profitability of carbon-intensive and low-carbon activities under climate transition risk scenarios. Second, we define the climate risk management strategy under uncertainty for a risk averse investor that aims to minimise her largest losses. Third, we price the climate policies scenarios in the probability of default of the individual sovereign bonds and in the bonds’ climate spread. Finally, we estimate the largest gains/losses on the insurance companies’ portfolios conditioned to the climate scenarios. We find that the potential impact of a disorderly transition to low-carbon economy on insurers portfolios of sovereign bonds is moderate in terms of its magnitude. However, it is non-negligible in several scenarios. Thus, it should be regularly monitored and assessed given the importance of sovereign bonds in insurers’ investment portfolios

Disclosure of Private Climate Transition Risks

This Article identifies a gap in the securities disclosure regime for climate change and demonstrates how filling the gap can improve fi nancial disclosures and accelerate climate change mitigation. Private climate initiatives have proliferated in the last decade. Often led by advocacy groups, these private initiatives have used naming and shaming campaigns and other means to induce investors, lenders, insurers, retail customers, supply chain customers, and employees to pressure firms to engage in climate change mitigation. Based on an empirical assessment of the annual reports filed with the Securities and Exchange Commission (SEC) by Fortune 100 firms and the largest firms in several fossil fuel-heavy sectors, this Article concludes that roughly a third of these firms disclose the risks and opportunities posed by private environmental governance (PEG) initiatives. The assessment also finds, however, that disclosures vary substantially among similar firms and among similar sectors. The Article argues that this heterogeneity in disclosure is not surprising given that the SEC\u27s 2010 climate guidance and other disclosure regimes do not call sufficient attention to PEG climate initiatives, and many lawyers think of environmental risks as synonymous with governmental regulatory risks. The legal literature on climate transition risk focuses principally on whether regulatory and market- based risks should be disclosed, but it overlooks the importance of the material risks posed by PEG climate initiatives. PEG climate ini- tiatives pose a discrete form of climate transition risk for many firms, and revisions to the SEC guidance and other disclosure regimes to account for PEG climate initiatives can be adopted more quickly, produce more complete financial disclosures, and yield greater and more durable emissions reductions than many other approaches

Disclosure of Private Climate Transition Risks

This Article identifies a gap in the securities disclosure regime for climate change and demonstrates how filling the gap can improve financial disclosures and accelerate climate change mitigation. Private climate initiatives have proliferated in the last decade. Often led by advocacy groups, these private initiatives have used naming and shaming campaigns and other means to induce investors, lenders, insurers, retail customers, supply chain customers, and employees to pressure firms to engage in climate change mitigation. Based on an empirical assessment of the annual reports filed with the Securities and Exchange Commission (SEC) by Fortune 100 firms and the largest firms in several fossil fuel-heavy sectors, this Article concludes that roughly a third of these firms disclose the risks and opportunities posed by private environmental governance (PEG) initiatives. The assessment also finds, however, that disclosures vary substantially among similar firms and among similar sectors. The Article argues that this heterogeneity in disclosure is not surprising given that the SEC’s 2010 climate guidance and other disclosure regimes do not call sufficient attention to PEG climate initiatives, and many lawyers think of environmental risks as synonymous with governmental regulatory risks. The legal literature on climate transition risk focuses principally on whether regulatory and market-based risks should be disclosed, but it overlooks the importance of the material risks posed by PEG climate initiatives. PEG climate initiatives pose a discrete form of climate transition risk for many firms, and revisions to the SEC guidance and other disclosure regimes to account for PEG climate initiatives can be adopted more quickly, produce more complete financial disclosures, and yield greater and more durable emissions reductions than many other approaches

Technological innovations at the onset of the Mid-Pleistocene Climate Transition in high-latitude East Asia

The interplay between Pleistocene climatic variability and hominin adaptations to diverse terrestrial ecosystems is a key topic in human evolutionary studies. Early and Middle Pleistocene environmental change and its relation to hominin behavioural responses has been a subject of great interest in Africa and Europe, though little information is available for other key regions of the Old World, particularly from Eastern Asia. Here we examine key Early Pleistocene sites of the Nihewan Basin, in high-latitude northern China, dating between ∼1.4 to 1.0 million years ago (Ma). We compare stone tool assemblages from three Early Pleistocene sites in the Nihewan Basin, including detailed assessment of stone tool refitting sequences at the ∼1.1 Ma-old site of Cenjiawan. Increased toolmaking skills and technological innovations are evident in the Nihewan Basin at the onset of the Mid-Pleistocene Climate Transition (MPT). Examination of the lithic technology of the Nihewan sites, together with an assessment of other key Palaeolithic sites of China, indicates that toolkits show increasing diversity at the outset of the MPT and in its aftermath. The overall evidence indicates the adaptive flexibility of early hominins to ecosystem changes since the MPT, though regional abandonments are also apparent in high-latitudes, likely owing to cold and oscillating environmental conditions. The view presented here sharply contrasts with traditional arguments that stone tool technologies of China are homogeneous and continuous over the course of the Early Pleistocene.Introduction Results - Stone-tool-knapping skills recorded in the Cenjiawan assemblage - Technological comparisons of the Nihewan Basin assemblages Discussio

Climate transition risk and bank lending

We investigate whether and how banks in the global syndicated loan market adjusted the pricing and supply of credit to account for higher climate transition risk (CTR) in the years following the 2015 Paris Agreement. We measure CTR by considering the pollution levels of borrowers and the engagement of countries where borrowers are headquartered in addressing climate change issues. The evidence is mixed and points to non-linear relations between lending variables and CO2 emissions. Policy events such as the Paris Agreement and government environmental awareness are significant climate risk drivers that, when combined, may amplify banks’ perception of CTR

Productivity changes across the mid-Pleistocene climate transition

We use benthic foraminiferal accumulation rates as a proxy for productivity changes during the mid-Pleistocene climate transition (MPT) (~1.2 Ma to 0.4 Ma). Our data are chosen to test the hypothesis that longer-term cooling and the onset of 100 kyr cyclicity are linked to atmospheric CO2 draw-down associated with an increase in primary productivity. To this end, we have constructed records from a global array of seven sites spanning major ocean basins and representing different hydrographic regimes (e.g., high and low latitudes, upwelling versus the deep western warm pools). We compare our data to published productivity proxy records from each site to identify limitations and uncertainties in the reconstructions. Results indicate that there is evidence for productivity increases during the onset of the MPT (1.2–1.0 Ma), but the changes are not globally synchronous and likely reflect regional hydrographic variability. On the orbital scale, productivity maxima tend to occur more closely related to glacial than interglacial intervals overall, but the relationships are not consistent. High interglacial productivity characterizes low latitude sites some of the time. In the obliquity band, high interglacial productivity in the eastern equatorial Pacific coincides with low interglacial productivity in the Southern Ocean, supporting a high to low latitude link via intermediate water circulation distribution of nutrients. On the regional scale, our records contribute new evidence for changes in Northern Hemisphere frontal systems during the MPT and for a close link between surface ocean production of organic matter and consumption on the ocean floor in the western tropical Atlantic. Pyrite counts at the two Southern Ocean sites provide supporting evidence for sluggish thermohaline overturn during the mid-point of the MPT at ~900 ka. Taken together, our records do not show a globally synchronous productivity signal that would support the biological pump as a driver for potential CO2-induced climate cooling during the MPT. Instead, we document complex regional variations in the carbon cycle, reflecting a combination of both biological and physical processes both on the longer as well as on the orbital time-scale

Climate Transition Relief: Federal Buyouts for Underwater Homes

As climate change causes unprecedented dislocation from flooding and sea-level rise, a new legal regime for climate retreat (i.e., shifting human settlement from severe climate risk zones) is developing. Buyout laws, such as FEMA’s Hazard Mitigation Grant Program, fund government acquisitions of severely flood-impacted homes, enabling owners to relocate, and require localities to rezone acquired land as open space. Despite the growing interest in flood buyouts as a tool for climate change adaptation, there has been little attention by policymakers or scholars to the capacity of buyouts to incentivize “buy ins” to flood zones by subsidizing flood risk-taking—a problematic irony given buyouts’ increasing role in climate retreat. This Article reconceptualizes buyouts from their current focus on dispossession to a form of climate transition relief that balances incentive effects against individual losses. Specifically, this Article advocates for a presumption against buyouts for flooded homeowners in order to curb incentives for high-risk housing choices. This reform would carve out a significant exception for low-income residents of floodplains and means test buyouts. In the face of severely constrained housing choice, unaffordable flood insurance, and high marginal costs from property loss, this group is less vulnerable to incentive distortion from compensation and more vulnerable to harm from dislocation. While this Article focuses on flood buyouts, the model of climate transition relief I propose can inform climate compensation and retreat policymaking more broadly

Essay in Economics, Political Economy and Climate Transition

In this study, we investigate the impact of climate-related events on listed companies and their stock performance. Our focus is on the major historical greenhouse gas emitters of four different sectors (fossil fuel, transportation, automobile, and financial). We analyze the effect of climate-related events, such as natural disasters caused by human actions, climate global strikes and speeches by Greta Thunberg, on the daily abnormal returns of these companies. The results suggest that, firstly, climate-related events can result, on average, in cumulative abnormal negative returns for those companies in these sectors compared to the renewable energy sector, used as the benchmark for the green sector. Second, for some of these companies, reputation risk may be reduced by high environmental pillar scores that are not perfectly aligned with environmental performances (i.e. GHG emissions). We then assess the impact of climate sentiment on short-term stock market performance, as measured by abnormal returns, finding a positive correlation between the climate-related social media talks and cumulative abnormal returns. To conclude, external events, including climate-related rallies and speeches, are correlated with negative abnormal stock returns in line with investor expectations.In this paper we analyse how health system endowment and the quality of institutions impact perceptions towards taxation. We conduct a sentiment analysis of Twitter users’ tweets to determine whether the impact of the Covid-19 health emergency has modified the attitudes of the citizens towards taxation in the four largest European countries: France, Germany, Italy and Spain. We use a difference-in-differences estimation strategy, comparing the average sentiments of individual tweets regarding taxation in different European NUTS-2 regions, before and after the spread of the Covid-19 pandemic. Our results highlight that in regions characterised by higher health system endowment people adopted more positive attitudes towards taxation with respect to those living in regions with low levels of health system endowment over the period -. In addition, we show how higher quality institutions led to more positive perceptions in relative and absolute terms, suggesting a greater predisposition for a more progressive tax system.Lobbying can help policy makers access relevant sector-specific information and make in- formed decisions. However, lobbying can also harm economic welfare if it successfully persuades policy makers to impose unnecessary regulations or maintain excessive market barriers. This study examines the relationship between lobbying expenditures, the environmental policy stringency regulation, firm-level green innovation and environmental reputation. Using a sample of 590 firms from 43 countries across 98 industries, we analyze firm-level financial and environmental data from the period of 2012 to 2020. Our results show that highly green innovative firms tend to spend more on lobbying, and that lobbying expenditures are negatively associated with environmental performance. We also find that environmental policy stringency has a positive impact on corporate environmental performance, while innovation and other factors have mixed effects. Our study contributes to the growing literature on the intersection of political economy, innovation, and climate transition

Mid-Miocene cooling and the extinction of tundra in continental Antarctica

A major obstacle in understanding the evolution of Cenozoic climate has been the lack of well dated terrestrial evidence from high-latitude, glaciated regions. Here, we report the discovery of exceptionally well preserved fossils of lacustrine and terrestrial organisms from the McMurdo Dry Valleys sector of the Transantarctic Mountains for which we have established a precise radiometric chronology. The fossils, which include diatoms, palynomorphs, mosses, ostracodes, and insects, represent the last vestige of a tundra community that inhabited the mountains before stepped cooling that first brought a full polar climate to Antarctica. Paleoecological analyses, 40Ar/39Ar analyses of associated ash fall, and climate inferences from glaciological modeling together suggest that mean summer temperatures in the region cooled by at least 8°C between 14.07 ± 0.05 Ma and 13.85 ± 0.03 Ma. These results provide novel constraints for the timing and amplitude of middle-Miocene cooling in Antarctica and reveal the ecological legacy of this global climate transition