Climate change and finance: metrics to assess risks and opportunities

Climate change and finance: metrics to assess risks and opportunities

PhD and Master-level course; Spring 2020 semester, 10 -14 Feb. 2020, 11.00 - 18.00



Climate change is considered as one of the most important challenge for humanity in the next decades. What are the risks for public and private finance? How can the financial sector contribute to climate change mitigation and adaptation? 
In the wake of the 2015 Paris Agreement on Climate Change there has been growing attention by financial supervisors and central bankers on the potential implications of climate risk for financial stability. In particular, the Financial Stability Board and the European Commission have set out initiatives to improve the climate risk disclosure, create a taxonomy of green assets and foster the awareness of existing metrics for climate-related financial risk. As a result, practitioners of both public and private financial institutions are increasingly interested in the implications for risk management of both climate-induced physical risk and policy risks associated with the transition to the low carbon economy. 

Learning Outcome

This intensive block seminar course draws from the recent developments on science-based climate-related financial metrics and provides the students with (i) an understanding of the main notions, main actors and open issues in climate financial risk, (ii) a first-hand know-how on the computation of metrics of climate financial risk on empirical portfolio data, and (iii) ability to assess their implications for policy and risk management.



Day one: From climate science to finance

Lectures. Relevant points from the IPCC report, the notion of carbon budget, climate-related physical risks versus energy
transition risks, transmission channels of climate-related risk into financial portfolios. Climate-finance flows: actors and
instruments in the climate finance landscape; the most relevant public and private financial institutions, regulators and
stakeholders; the main financial instruments and markets.
Class work. Students gather anecdotal evidence on recent events (weather/policy/market) that illustrate specific channels
through which physical / transition risk materialize. Collective work: group the examples by type of risk and type of actor.
Preparation of small report to be discussed in class. 

Day two: From climate policies to finance

Lectures. The Paris Agreement, recent developments in policy and practice relevant to financial investing. The debate on
market-based solutions to climate change. Climate change and financial stability: the G20 Financial Stability Board Task
Force on Climate related financial disclosure. Climate change and central banking: the debate on the role of monetary policies.
Regulatory developments in the EU: the Sustainable Finance Action Plan. Challenges in building a taxonomy of climate
financial assets. Challenges from green-washing practices: is there a risk of a green bubble?
Class work. Analysis of selected policy documents on climate-related financial disclosure. Students prepare executive
summaries of implications for selected investor types e.g. banks, insurance and investment funds, to be discussed in class. 

Day three: Science-based climate-related financial metrics (I)

Lectures. Green-house gas (GHG) emissions throughout economic sectors. Working with data: economic sector classifications
ESA2010, NAICS, NACE Rev1. GHG emissions data at sector level and firm level. Climate-relevant data in BvD, Bloomberg and
Thomson Reuters. Computing metrics of climate impact for financial portfolios.  
Class work. Students are given example portfolios of equity/bonds securities with firms’ climate relevant information (GHG
emissions, ESG scores). Computation of basic statistics of climate relevant variables, computation of selected metrics
such as GHG exposure, holdings, intensity etc. as defined in the lecture. Results are discussed in class.  

Day four: Science-based climate-related financial metrics (II)

Lectures. Policy scenarios and GHG emissions trajectories: 2-degrees scenarios and future energy trajectories,
notions of Integrated Assessment Models. Computing forward-looking metrics of exposure to climate risk for financial portfolios.
Classwork. Students are given example portfolios of equity and corporate bonds securities and a set of business-as-usual
versus climate policy targets trajectories for selected regions and economic sectors. Computing financial shocks deriving
from sectors/firms misalignment to policy targets. Comparison between green and brown investment strategies in distinct
policy scenarios: early-and-smooth transition, late-and-sudden transition, business-as-usual. 

Day five: Selected topics, case studies and outlook

Lectures. Climate risk for the portfolio of a development bank in climate-vulnerable region. Carbon assessment of ECB asset
purchasing program. The EIB infrastructure loans portfolio and the EU 2030 climate energy targets. The notion of blended
finance. Selected topics in impact investing. Outlook on climate financial risk in the next years, open issues in research and practice.
Classwork: Students are given case studies of real portfolios (infrastructure projects loans, equity holdings and
corporate bonds). They carry out a carbon risk assessment based on lessons learnt in the previous class works.
Results are discussed in class. 
Final homework: students combine the work done in class into a short individual report to be submitted within two
weeks after the end of the block seminar.


  • Battiston, S., Mandel, A., Monasterolo, I., Schütze, F., & Visentin, G. (2017). A Climate stress-test of the financial system.
Nature Climate Change, 7(4), 283–288.
  • Monasterolo, I., Battiston, S., Janetos, A. C. A. C., & Zheng, Z. (2017). Vulnerable yet relevant: the two dimensions of
climate-related financial disclosure. Climatic Change, 145(3–4), 495–507.
  • Monasterolo, I., Zengh Jiani, I., & Battiston, S. (2018). Climate-finance and climate transition risk: an assessment of
China’s overseas energy investments portfolio. China and the World Economy, 26, 6(116–142).
  • Karpf, A., Mandel, A., & Battiston, S. (2018). Price and Network Dynamics in the European Carbon Market.
Journal of Economic Behavior & Organization, 153, 103–122.