Week 2: Responsible Divesting Flashcards
What are 2 pathways to realize net zero emissions?
- laws and regulations
- Market based approaches: marketable permit systems, emissions taxes/fees/charges, subsidies, and tax subsidy combinations (bottle deposit)
What kind of risk does Climate change give?
Risk on long term financial system/investors
What is the risk of the Fossil fuel sector?
Risk of stranded assets: lose market value and become stranded as consequence of climate policy or rapid cost decreases in low-carbon technologies
What are 3 points of the sustainable investment policy?
- ESG integration of factors that could have a material impact on investment risk or return
- Active ownership through proxy voting and company engagement
- Collaboration with other investors in promoting sustainable investing
What are two approaches to change fossil fuel sector?
- Engage with industry to confront the challenge of climate change
- Divestment
What is the Norges Bank Investment Management (NBIM) strategy?
Exclusions in two categories: ethical (regardless finance) and climate-relate risk (divestment gave positively financial returns, due to unattractive financial numbers)
What 3 risks did NBIM identify?
- firms impact on environment damage the broader economy
- future ESG regulation harmful to firms bottom line
- firm difficulty transitioning to clean energy world
What can you tell about Divest Harvard
Students first began formally pressing the university to divest from fossil fuels in 2012 with the creation of Divest Harvard (DH), an organization with three demands of the university’s endowment: (1) Disclose fossil fuel investments, (2) Divest from the fossil fuel industry, and (3) Reinvest by “supporting environmentally sustainable, socially responsible, and community-based investment.”
In April 2019, organizers disrupted an event at which President Bacow was speaking. A month later, Harvard College Commencement speaker Al Gore asked the crowd, “Why would Harvard University continue to support with its finances an industry like this that is in the process of threatening the future of humanity?” In November 2019, activists from Harvard and Yale stormed the field at the famed Yale-Harvard game holding banners with messages such as: “Presidents Bacow and Salovey: Our Future Demands Action Now.”
-> Feb 18 Harvard announced: fossil fuel net neutral by 2026, and fossil fuel free by 2050
What are SIN stocks?
Publicly-traded companies involved in producing alcohol, tobacco, and gaming (and weapons).
Why are pension funds particularly exposed to climate risk?
- Long term investment horizons
- Diversified international portfolios
- Large passively managed portfolios
Why did green return increase the last years?
- Dissecting Green Returns (Pástor et al., 2022)
This performance reflects unexpectedly strong increases in environmental concerns, not high expected returns.
German green bonds outperformed their higher-yielding non-green twins as the “greenium” widened, and U.S. green stocks outperformed brown as climate concerns strengthened.
Thus lower return expected for green than brown
What can you tell about industry-level greenness?
- Dissecting Green Returns (Pástor et al., 2022)
It, opposed to within-industry differences in greenness, largely accounts for the superior performance of green stocks as well as the importance of climate shocks in explaining that performance.
What is the main finding of Huisman & van Nijen (2024) in their paper: Does adaptive capacity reduce funding costs of municipalities that are exposed to climate change risk?
They find a negative relationship between adaptive capacity and bond issuance costs and conclude that cities having policies to improve adaptive capacity are likely to be paid off by lower funding costs.
