IDEAS home Printed from https://ideas.repec.org/a/taf/jsustf/v12y2022i2p407-422.html
   My bibliography  Save this article

Why market actors fuel the carbon bubble. The agency, governance, and incentive problems that distort corporate climate risk management

Author

Listed:
  • Drew Riedl

Abstract

Similar to the housing bubble, a carbon bubble is being fueled by misaligned corporate governance structures and market incentives that distort capital allocation. Science indicates that a rapid energy transition is needed. However, oil and gas reserves already vastly exceed what can be consumed and continue to increase. A significant portion of fossil fuel assets will eventually become ‘stranded’ – prematurely obsolete over their expected lives. This article examines the various market actors and motivations that are distorting corporate and financial climate risk management. Incentives and structural impediments among key market participants such as short-termism/myopia, long-term arbitrage costs, agency costs / career self-interest, and analytical and cognitive limitations (e.g. bounded rationality), exacerbate the problem. Recognition of these motivations is a ‘heads up’ for shareholders, investors and others to better manage risk.

Suggested Citation

  • Drew Riedl, 2022. "Why market actors fuel the carbon bubble. The agency, governance, and incentive problems that distort corporate climate risk management," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 12(2), pages 407-422, April.
  • Handle: RePEc:taf:jsustf:v:12:y:2022:i:2:p:407-422
    DOI: 10.1080/20430795.2020.1769986
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/20430795.2020.1769986
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/20430795.2020.1769986?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sakariyahu, Rilwan & Lawal, Rodiat & Kwansa, Nana Abena & Ahmed, Ammar & Adamolekun, Gbenga, 2023. "Emissions trading scheme participation and firms’ cash holdings," Finance Research Letters, Elsevier, vol. 58(PC).
    2. Wei, Yigang & Li, Yan & Wang, Zhicheng, 2022. "Multiple price bubbles in global major emission trading schemes: Evidence from European Union, New Zealand, South Korea and China," Energy Economics, Elsevier, vol. 113(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:jsustf:v:12:y:2022:i:2:p:407-422. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/TSFI20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.