This first EDHEC Climate and Finance special issue of the P&I supplement covers research issues that have relevance for the investment industry today.
We describe how oft-criticized models linking the economy and the planet's climate can be upgraded to include the latest advances in science. We introduce a factor that captures both the sectoral and intra-sectoral dimensions of transition risks. We analyze the outperformance of low-carbon energy infrastructure investments over the past decade. We use advanced econometric methods to explore the relationship between stock returns and proxies for environmental footprint and use a variety of language models to construct climate news indices.
Finally, we introduce and discuss the characteristics of long-term climate scenarios, such as those developed by the Network for Greening the Financial System (NGFS) and look at their operationalization for climate-financial risk assessment, current limitations, and potential for further development.