ENE481 Climate Risk

• Topics

  The seminar includes a mixture of lectures and guest speakers from reputable Norwegian institutions. Drawing upon insights gained from these lectures, students will be required to create a memo directed to an institutional investor's board of directors, proposing a climate risk policy. The policy should address both the management of the firm's climate risk exposure and the potential impact that the firm may exert on the climate itself. A detailed case study will provide the necessary background on the institutional investor.

  The seminar covers the following topics:

  1. Fundamentals of Global Warming Science.
  2. The Interplay Between Global Warming, Economics, and Financial Markets: Examining risks and opportunities for investors.
  3. Data Quality and Availability: An overview of firms and institutions enhancing data access and providing standardization in the climate risk sector.
  4. Risk Management Strategies for Institutional Investors: Exploring methods for mitigating financial risks related to anthropogenic climate change, capitalizing on associated opportunities, and contributing to global climate risk reduction.
  5. Portfolio Construction for Listed Assets: Examining approaches for incorporating climate-related objectives into mean-variance optimization, whether as constraining factors or as complementary objectives.
  6. Crafting Effective Board Memos: Guidelines for articulating climate risk policies while addressing the complexities of the principal-agent relationship and organizational governance.

• Learning outcome

  Given that the subject matter is continuously evolving and lacks a consensus among academics, investors and policymakers, this seminar aims to provide students with a foundational understanding while recognizing the need for focused scope within a week-long seminar.

  Knowledge

  Upon completing the course, students will

  • Have a well-rounded understanding of the climate crisis, its economic ramifications, and impact on financial markets.
  • Be equipped to evaluate whether climate considerations should be a separate objective or a constraint within existing financial objectives.
  • Be aware of the range of institutional investor approaches to climate risk, including the pros and cons of different management strategies, e.g., impact investing vs. active ownership.
  • Grasp the role of institutional investors in the movement of capital within the economy.
  • Be conscious about the dynamics between principals (owners) and agents (executives).

  Skills

  Upon successful completion, students should be able to

  • Draft a coherent board memo.
  • Make informed policy recommendations, considering uncertainty and gaps in current knowledge.
  • Discuss the financial implications of the climate crisis.
  • Discern between 'greenwashing' and genuine climate policies when evaluating institutional investors.
  • Apply quantitative techniques to assess how tilting a portfolio toward a climate risk objective impacts expected return and market risk, while recognizing that such techniques are based on models that may not fully capture all risks or provide complete inferences.

  General Competences

  Upon successful completion, students can

  • Understand real-world governance challenges in business.
  • Master the art of balancing conflicting objectives.
  • Apply economic and financial principles to real-world issues.

• Teaching

  One week-long intensive course with lectures and assignments.

• Recommended prerequisites

  Some familiarity with financial markets, portfolio selection, asset pricing, and programming will be beneficial for course participants. However, the course could also serve as an introductory primer for these topics, providing a foundational understanding that can be built upon in future studies.

  Knowledge of basic calculus, basic statistics, and coding in a high level language like Python, R, Julia VBA, etc..

• Credit reduction due to overlap

  None.

• Compulsory Activity

  Homework assignments and brief assessments to evaluate educational advancement.

• Assessment

  Written assignment. Students can deliver answers individually or in groups of maximum four.

  The assignement is due approx. 2 weeks after the course ends.

• Grading Scale

  Pass-Fail

• Computer tools

  Excel and R, Python or similar.

• Literature

  Book chapters and articles (made available through Leganto).