Vacatures in Institutioneel Vermogensbeheer

Listed portfolios show vulnerability to transition risk of higher carbon prices

Bron: Platform for Sustainable Financing - 14 maart 2022

An European or Dutch carbon tax will affect the Dutch economy in almost equal measure. Our economy will actually benefit from an international tax, however. This is demonstrated in a study commissioned by ABN AMRO Bank, MN, PGGM, De Volksbank and initiator Rabobank. This study 'The Impact of Carbon Pricing' is conducted by a working group of the Platform for Sustainable Financing.

Robbert Lammers (Advisor Responsible Investment at MN) looked at the extent to which portfolios or asset classes are vulnerable to climate risks. You will find his contribution from page 63 onwards.

Executive Summary part 5

Robbert Lammers (MN) looked at the extent to which portfolios or asset classes are vulnerable to climate risks. He highlights that this depends not only on the speed of transition and the underlying sector or regions, but also on the risk profile of the particular asset class. Moreover, he explains that a listed equity portfolio with 50% exposure to these sectors will probably be more affected than a corporate bond portfolio with the same sector exposure. For an equity investor, a carbon tax has a potential impact on future cash flows, which, generally speaking, will decline once the costs increase. The main issue for bond investors is whether the probability of default (PD) will increase during the remaining life of the bond. PD will increase significantly only if the extra expected costs are so high that the survival of a company is endangered.

The expected relative vulnerability of listed equity portfolios to climate transition risks has led Lammers to interpret the model results with equity portfolios in mind, by mapping the results on listed equity benchmarks. In spite of some caveats and model limitations, the research describes some clear vulnerabilities by identifying those sectors that represent both a significant part of the total market cap of a benchmark and show a significant modelled decline in economic output. Identification of sectors that are highly exposed to climate risks may serve as a guide for further research and ultimately aid the process of benchmark- and portfolio construction.

Read more  (from page 63 onwards) >>

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