TBLI NORDIC 2015 - Jakob Thomä - Managing Climate Change Risks for Investors

11
FINANCIAL RISK AND THE TRANSITION TO A LOWCARBON ECONOMY

Transcript of TBLI NORDIC 2015 - Jakob Thomä - Managing Climate Change Risks for Investors

Page 1: TBLI NORDIC 2015 - Jakob Thomä -  Managing Climate Change Risks for Investors

FINANCIAL  RISK  AND  THE  TRANSITION  TO  A  LOW-­‐CARBON  

ECONOMY  

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ABOUT  US  

The  2°  Inves=ng  Ini=a=ve  is  an  interna=onal,  non-­‐profit  think  tank  working  on  finance  sector  issues  as  they  pertain  to  climate  change.  We  help  design  metrics  and  products  for  investors,  challenge  mainstream  investment  processes,  and  engage  with  financial  regulators  and  supervisors  to  integrate  climate  constraints  into  financial  regula5on  and  

policy.  

Projects:  

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OUR  RESEARCH  

Op=mal  diversifica=on  &  the  transi=on  to  a  low-­‐carbon  economy  

Financial  risk  &  the  transi=on  to  a  low-­‐carbon  economy  

Climate  strategies  &  metrics  for  

ins=tu=onal  investors  

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KEY  MESSAGES  

ü  Current  risk  management  frameworks  are  unlikely  to  capture  risks  associated  with  the  transi=on  to  a  low-­‐carbon  economy.  The  materiality  of  these  risks  is  s5ll  unclear.  

ü Managing  carbon  risk  is  likely  to  involve  different  strategies  rela=ve  to  managing  ‘climate-­‐friendliness’.    

ü  Responses  can  include  boWom-­‐up  assessment  or  a  top-­‐down  assessment.    

ü  Top-­‐down  assessment  as  part  of  a  porXolio  management  strategy  should  focus  on  both  sector  and  energy  technology  diversifica=on.  

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WHAT  IS  THE  PROBLEM?  (1)  

Uncertainty  about  the  scenario   Distribu5on  of  risk  

0  

10  

20  

30  

40  

50  

60  

70  

80  

2010   2020   2030   2040   2050  

GtCO2/year  

0  

0.05  

0.1  

0.15  

0.2  

0.25  

Normal  Distribu5on  

Climate  roadmaps  distribu5on  

FAT  TAILS  &    SKEWED  RISK  

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WHAT  IS  THE  PROBLEM?  (2)  

The  technical  risk  model   The  ‘tragedy  of  5me  horizon’  

0.0%  

20.0%  

40.0%  

60.0%  

80.0%  

100.0%  

Airlines   Electric  U5li5es  

1-­‐5  Years   6-­‐10  years  

11-­‐20  years   21-­‐50  years  

0  

10  

20  

30  

40  

50  

60  

70  

Physical  assets  

Fina

ncial  assets  

Risk  m

odels  

Asset  m

anagem

ent  

Asset  m

anagem

ent  

man

dates  

Asset  o

wne

rs  

Years   POTENTIAL    

RISK  

POTENTIAL    RISK  

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WHAT  IS  THE  PROBLEM?  (3)  

Diversifica5on  of    oil  &  gas  company  

Diversifica5on  of    financial  ins5tu5ons  

Focus  on    oil  &  gas  

⇒ Comprehensive  view    needed  on  por/olio  risk  

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CLIMATE  FRIENDLINESS  VS.  CARBON  RISK  

…for  the  automobile  sector.   …for  the  O&G  sector  

 $-­‐    

 $3,000    

 $6,000    

 $9,000    

 $12,000    

 $15,000    

 $18,000    

0  

10  

20  

30  

40  

50  

Porsche  

Ferrari  /  M

asera5

 

Audi  

BMW  

Mercede

s  

Toyota  

Hyun

dai  

Chrysler  

Ford  

Volksw

agen

 

MPG

 

MPG  (est)  (Lhs)   EBIT  /  car  (Rhs)  

0%  

5%  

10%  

15%  

20%  

25%  

30%  

0   20   40   60   80   100  Share  of  high-­‐cost  cap

ex  

MBOE  /  $  market  capitaliza5on  (est.)  

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TOP-­‐DOWN  APPROACH:  DIVERSIFICATION  BY  SECTOR  &  ENERGY  TECHNOLOGY  S&P  500  exposure  to  green  /  low-­‐carbon  vehicles  

European  index  exposure  to  O&G  

0.0%  1.0%  2.0%  3.0%  4.0%  5.0%  

US  Sales  

S&P5

00  Sales  

Non

-­‐S&P5

00  Sales  

Hybrid   Plug-­‐in  Hybrid   Electric  

0%  

5%  

10%  

15%  

20%  

FTSE100  

Est.  UK  listed  (1178  

CAC4

0  Est.  Fran

ce  listed

 (631  

Stoxx600  

Est.  Eu

rope

 listed

 

S&P5

00  

Est.  US  listed  (7777  

MSCI  W

orld  

Est.  De

v.  Econ.  Listed  

Dax30  

Est.  German

 listed

 

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..AND  FORWARD-­‐LOOKING  ANALYSIS  

0%  

20%  

40%  

60%  

80%  

100%  

S&P500  2013  

USA  Elec.  Gen.  2013  

IEA  US  450  Scenario  2035  

FTSE100   UK  Elec.  Gen.  2013  

DAX30  2013  

Germany  Elec.  Gen.  

2013  

DB  Germany  Scenario  2035  

Coal   Gas  &  petroleum   Nuclear   Renewable  

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KEY  MESSAGES  

ü  Current  risk  management  frameworks  are  unlikely  to  capture  risks  associated  with  the  transi=on  to  a  low-­‐carbon  economy.  The  materiality  of  these  risks  is  s5ll  unclear.  

ü Managing  carbon  risk  is  likely  to  involve  different  strategies  rela=ve  to  managing  ‘climate-­‐friendliness’.    

ü  Responses  can  include  boWom-­‐up  assessment  or  a  top-­‐down  assessment.    

ü  Top-­‐down  assessment  as  part  of  a  porXolio  management  strategy  should  focus  on  both  sector  and  energy  technology  diversifica=on.