Green and Sustainable Finance program of Louis Bachelier

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Green and Sustainable Finance program of Louis Bachelier Institute

Green and Sustainable Finance program of Louis Bachelier Institute

A transversal program to improve synergies and visibility of French green finance research •

A transversal program to improve synergies and visibility of French green finance research • Program goals : • Develop a multi-disciplinary coordination dynamics among the existing French research programs with interest in Green Finance • Stimulate new research initiatives on highly relevant topics with potential of applicability in green finance. • Create a Green Data Lab, a reliable source of data related to green and sustainable finance for academic and professional community. https: //sustainablefinanceprogram. org/

Science and methodology for implementing TCFD recommendations: risks and scenarios Research questions : Move

Science and methodology for implementing TCFD recommendations: risks and scenarios Research questions : Move from carbon impact reporting to forward looking criteria : - Alignment of the company’s strategy to the sustainable development goals - Climate change mitigation strategies - Quantifying the associated model uncertainty - Pros and cons of standardization Modeling and quantifying the transition and physical risks affecting the assets Green accounting and prudential regulation Developing climate stress tests Understanding the impact of ESG factors on asset pricing Quantifying the alignment to climate scenarios (e. g. the 2° scenario of the Paris agreement)

Science and methodology for implementing TCFD recommendations: risks and scenarios Practitioner questions : -

Science and methodology for implementing TCFD recommendations: risks and scenarios Practitioner questions : - Stranded Assets : how to identify the point in the scenario where the loss materializes? - Establish a classification of uncertainties of various types - Climate models work for 100 year but what about 10 years? - Climate and energy transition benchmark : if everybody aligns, does this create systemic risk in case of severe readjustment ? - Propagation of physical risks along the supply chain. Pricing of climate risks : can they be priced or should they be excluded? How to check whether a given risk is priced by the market? Stress tests : 2 dimensions : understand the risks at the micro level + aggregate the risks in a macro scenario Exclusion rules (do not exclude a brown company which wants to turn green)

From assets to portfolios Research questions : - How to transpose the forward looking

From assets to portfolios Research questions : - How to transpose the forward looking criteria from assets to portfolios - Most studies focus on equity: what about other asset classes (e. g. , Fixed Income), what is an ESG-compliant portfolio of sovereign bonds? - How to develop optimal investment strategies incorporating ESG criteria or climate risks ? - How do the ESG investors affect the prices of assets and accelerate the greening of the economy?

Transforming green data Green data is often proprietary, inhomogeneous (150+providers), not always reliable and

Transforming green data Green data is often proprietary, inhomogeneous (150+providers), not always reliable and difficult to access for the academic community Our goal is to create the ILB Green Data Lab: a repository of reference data and methods available to academics and practitioners: - Characterization of green assets Environmental impact metrics Measures of climate / environmental risks Optimal asset allocation strategies Alignment with specific global warming scenarios Using models to make different sources of data (e. g. climate and economic scenarios) coherent among themselves

Proactive role of Academic Research - Ten years on from the subprime crisis, the

Proactive role of Academic Research - Ten years on from the subprime crisis, the finance continues to breed mistrust - A two levels debate : Change the fuel…. And change the engine - The new risks of “green and sustainable” finance are more complex, and their systemic impact is evident - The role of Academic back up is also to : • • Challenge the impossible : Black Swan Evaluation Challenge the false problems: Green Bond premium Challenge the false solutions Challenge green washing : Positive Impact measure

Towards a new dialogue dynamics - Risky industries have an history of proactive dialogue

Towards a new dialogue dynamics - Risky industries have an history of proactive dialogue between research and business - To face these challenges, a new dialogue between the academic and practitioner community based on unprecedented transparency is required - The academics must inform the practitioners of the state of the art of research, to help them avoid false problems and false solutions - The practitioners must be able to confidently share data to enable the researchers to test the models and the regulators to build reliable systemic risk indicators