On the Impact of Sustainability and Climate Change on Assets and Investors
This dissertation "On the Impact of Sustainability and Climate Change on Assets and Investors" discusses crucial sustainability and climate-related issues in finance. It provides insights on whether the intensifying climate change crisis will bring about a fundamental reshaping of finance (Fink, 2020). A thorough exploration of the topic provides grounds for motivation. This introduction is followed by a short description of the articles of the dissertation before they are presented in detail in separate chapters. The dissertation concludes with a discussion of the insights gained and describes unresolved questions and issues for future research in Sustainable and Climate Finance. This dissertation provides new insights into the impact of both sustainability and climate change on assets and investors. In this respect, it contributes with all six articles to the latest climate change and sustainability developments and challenges of our society. The first four articles address capital market trends that arise from the agreement of the world to combat climate change and the ensuing transition process towards a green economy. The Paris Agreement, the outcome of the UN Climate Change Conference 2015 (Conference of the Parties (COP) 21), is groundbreaking in this context. Under this agreement, more than 195 nations agreed to limit global warming to well below 2°C – preferably below 1.5°C – above pre-industrial levels (United Nations, 2015). This emphasizes the need for a rethinking of present behavior with a consequent change in society, politics, and economy for the mitigation of climate change. The EU commission with its release of an EU action plan for financing sustainable growth makes a major contribution to this cause. Its purpose is to reorient capital flows towards sustainable investments in order to achieve sustainable and inclusive growth. This action plan also promotes the integration of sustainability into risk management and fosters transparency and long-termism in financial and economic activities. Central banks and supervisors are supporting these ambitions with their recently launched Network for Greening the Financial System (NGFS). Similarly, numerous representatives of the finance industry and stock exchanges organized in the Task Force on Climate-related Financial Disclosure (TCFD) are developing guidelines and a framework for comprehensive and efficient climate risk disclosure. Beyond the achievement of a global climate policy to successfully combat climate change, as expressed in the Paris Agreement, the world has agreed to adopt the Sustainable Development Goals (SDGs) outlined by the UN in 2015. Their adoption marks the challenging beginning of a global social and economic transition towards a sustainable future. An increasing number of asset managers consider SDGs to be an important investment opportunity and plan to integrate SDGs into their investment processes. Indeed, numerous investors are looking at how they can incorporate SDGs into their ESG frameworks. SDGs have thus become a highly relevant issue for capital market participants. For this reason, the last two articles in this dissertation contribute towards a better understanding of SDGs (and related sustainability frameworks) from a financial perspective. This dissertation aims to add to our understanding of two societal developments. On the one hand, it analyzes how carbon risk, which arises from the transition process towards a green economy, is perceived in capital markets and by capital market participants. On the other hand, it examines a more holistic approach to sustainability, also taking into account SDGs and what implications they have for firms and investors. Chapter 1 will continue with an overview of all the articles of this dissertation. Chapter 2 examines carbon risk and the missing carbon risk premia in a factor-based capital markets approach. The focus of Chapter 3 is the integration of carbon risk into portfolio management and the associated impact on a portfolio's performance, risk profile and factor exposures. The following Chapter 4 looks into the perception of carbon risk during a crisis, also with a view to the current COVID-19 pandemic. The conclusion of the first part on carbon risks and climate change closes in Chapter 5 with an examination of the extent to which non-financial information, such as carbon emissions, can have an impact on the accuracy of firm valuations using multiples. The second part of the dissertation begins in Chapter 6 with an examination of how a firm's contribution to SDGs impacts its value. Chapter 7 discusses the last article investigating the sustainability and financial performance of the DAX 50 ESG. In the final Chapter 8, the results of this dissertation are outlined briefly and insights are provided on how these findings might be relevant for future research.
