Financial Analysis of Climate Risk: An I

The signing of the Paris Treaty in 2015 signaled a recognition by nearly all the world’s governments of the need to reduce greenhouse gas emissions to avoid the worst effects of climate change. Meanwhile, the changing climate is already having negative impacts on business assets and operations around the world. Despite evidence that climate change poses a threat to business as usual for many companies, the financial sector has yet to form a consistent view on how to value risks and opportunities associated with climate change. There are multiple reasons for this. Climate-related disclosures vary widely from company to company, as do the ways that climate risks affect different sectors and geographies. The policy landscape is varied and fast changing. Unfortunately, many financial analysts lack the technical knowledge to assess corporate disclosures and actions pertaining to climate.

This 6-week course provides a practical overview of how analysts in the financial sector can assess corporate climate risk and opportunity among publicly traded corporates, using public data. The class will begin with the concept of how business leaders and financial analysts understand climate risk – alongside other concepts such as decarbonization, transition planning and climate impacts from a policy perspective. 

We will then move to focus on industry-specific analysis in four sectors – 1) oil and gas, 2) consumer staples, 3) mining, and 4) financial services. In each, we will survey the tools that investors have to assess climate risk and opportunity, taking into account policy, voluntary frameworks, and technology. For each of these elements, we will review both how these tools can assist with climate risk analysis as well as their limitations and inconsistencies. We will consider ways the analyst can work with relevant data and reconcile public corporate claims with evidence through corporate disclosures.