Upendra Choudhary
Senior Director, Business Development & Client Services
Last night, I had the privilege of attending an eye-opening session hosted by the CFA Society of the UK, featuring Bob Buhr as the speaker. Bob is an Honorary Research Fellow at the Centre for Climate Finance and Investment, Imperial College Business School, with more than 30 years as a career in corporate bond analyst. Bob delved into the crucial topic of incorporating climate risks into financial investments. The event was well attended by portfolio managers, heads of research, and investment risk professionals, all eager to gain insights into this increasingly critical aspect of modern finance.
In my opinion, Bob's presentation was nothing short of enlightening. He began by outlining the four broad categories of climate risks and provided a detailed taxonomy, accompanied by real-world examples of how these risks affect companies across various sectors. The central theme of the discussion revolved around comprehending, quantifying, and analyzing climate risks concerning individual company equity and bond investments. What emerged was a comprehensive framework for assessing credit risk, which now extends well beyond traditional factors to encompass climate-related risks as outlined below:
Bob emphasized that there is no singular "Climate Risk." Rather, this term serves as a convenient umbrella for a multitude of risk categories, ranging from rising sea levels to biodiversity and commodity price fluctuations. Each risk must be assessed based on the likelihood (which is relatively high at this time), its timing (with horizons varying significantly), and the scale (a highly uncertain aspect). He emphasized that many climate risks may not materialize within the typical three to five-year financial modeling window, or indeed even within our lifetimes. Moreover, future regulatory changes and policy decisions, such as the introduction of carbon taxes, will undoubtedly impact these risks.
Regarding regulatory convergence and standardization, Bob provided a comprehensive evaluation of the current landscape. While elements like physical risks are well understood and driven by reports from the Intergovernmental Panel on Climate Change (IPCC) and insurance requirements, regimes like the Task Force on Climate-Related Financial Disclosures (TCFD) focus more on transition risks for mitigation but lack standardization. The forthcoming International Sustainability Standards Board (ISSB) accounting standards are particularly intriguing, as they will compel companies and auditors to account for longer-term risks.
Here are some other intriguing takeaways from the session :
The session proved to be a valuable learning experience, aligning perfectly with the CFA Society of the UK's mission to upskill its members. Bob’s book “Climate Risks: An Investor's Field Guide to Identification and Assessment” (part of The Wiley Finance Series) is a must read for practitioners. You can find it on Amazon here.
Upendra Choudhary
Senior Director, Business Development & Client Services
Last night, I had the privilege of attending an eye-opening session hosted by the CFA Society of the UK, featuring Bob Buhr as the speaker. Bob is an Honorary Research Fellow at the Centre for Climate Finance and Investment, Imperial College Business School, with more than 30 years as a career in corporate bond analyst. Bob delved into the crucial topic of incorporating climate risks into financial investments. The event was well attended by portfolio managers, heads of research, and investment risk professionals, all eager to gain insights into this increasingly critical aspect of modern finance.
In my opinion, Bob's presentation was nothing short of enlightening. He began by outlining the four broad categories of climate risks and provided a detailed taxonomy, accompanied by real-world examples of how these risks affect companies across various sectors. The central theme of the discussion revolved around comprehending, quantifying, and analyzing climate risks concerning individual company equity and bond investments. What emerged was a comprehensive framework for assessing credit risk, which now extends well beyond traditional factors to encompass climate-related risks as outlined below:
Bob emphasized that there is no singular "Climate Risk." Rather, this term serves as a convenient umbrella for a multitude of risk categories, ranging from rising sea levels to biodiversity and commodity price fluctuations. Each risk must be assessed based on the likelihood (which is relatively high at this time), its timing (with horizons varying significantly), and the scale (a highly uncertain aspect). He emphasized that many climate risks may not materialize within the typical three to five-year financial modeling window, or indeed even within our lifetimes. Moreover, future regulatory changes and policy decisions, such as the introduction of carbon taxes, will undoubtedly impact these risks.
Regarding regulatory convergence and standardization, Bob provided a comprehensive evaluation of the current landscape. While elements like physical risks are well understood and driven by reports from the Intergovernmental Panel on Climate Change (IPCC) and insurance requirements, regimes like the Task Force on Climate-Related Financial Disclosures (TCFD) focus more on transition risks for mitigation but lack standardization. The forthcoming International Sustainability Standards Board (ISSB) accounting standards are particularly intriguing, as they will compel companies and auditors to account for longer-term risks.
Here are some other intriguing takeaways from the session :
The session proved to be a valuable learning experience, aligning perfectly with the CFA Society of the UK's mission to upskill its members. Bob’s book “Climate Risks: An Investor's Field Guide to Identification and Assessment” (part of The Wiley Finance Series) is a must read for practitioners. You can find it on Amazon here.
