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Environmental Beta or How Institutional Investors Think about Climate Change and Fossil Fuel Risk

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  • Brett Christophers

Abstract

It is widely recognized that to limit the long-term extent of global warming and its socioecological consequences, the world must transition over future decades to a low- or zero-carbon economy. Among the many imponderables relating to this eventual transition is the role of the principal owners of the fossil fuel companies that are primarily responsible for global greenhouse gas emissions—namely, institutional financial investors. The investment behavior of these institutions will substantively shape not only the speed and nature of the economy and society’s transition to cleaner energy sources but also the speed and nature of the global financial system’s own parallel transition to a low- or zero-carbon world. In the wake of the global financial crisis of 2007 to 2009, governments and regulators around the world are increasingly concerned that the latter transition might represent a major potential source of future financial instability. These authorities are calling on institutional investors to effect an orderly and measured transition by fully recognizing the climate-related risks of investment in fossil fuel companies and pricing these risks appropriately. Yet they are doing so in the absence of informed, up-to-date, and meaningful knowledge of how the investment community actually thinks about climate change and fossil fuel risk. This article maps out the key lineaments of this thinking on the basis of an extensive program of interviews with global investment institutions. Contra government and regulator hopes and expectations, this thinking indicates that fossil fuel investment is set to be a long-term locus of excess, not minimal, financial market volatility: of environmental beta.

Suggested Citation

  • Brett Christophers, 2019. "Environmental Beta or How Institutional Investors Think about Climate Change and Fossil Fuel Risk," Annals of the American Association of Geographers, Taylor & Francis Journals, vol. 109(3), pages 754-774, May.
    • Handle: RePEc:taf:raagxx:v:109:y:2019:i:3:p:754-774
    DOI: 10.1080/24694452.2018.1489213
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    Citations

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    Cited by:

    1. Daniela Gabor, 2021. "The Wall Street Consensus," Development and Change, International Institute of Social Studies, vol. 52(3), pages 429-459, May.
    2. Paul Langley & John H Morris, 2020. "Central banks: Climate governors of last resort?," Environment and Planning A, , vol. 52(8), pages 1471-1479, November.
    3. Gabor, Daniela, 2020. "The Wall Street Consensus," SocArXiv wab8m, Center for Open Science.
    4. Gregor Semieniuk & Emanuele Campiglio & Jean‐Francois Mercure & Ulrich Volz & Neil R. Edwards, 2021. "Low‐carbon transition risks for finance," Wiley Interdisciplinary Reviews: Climate Change, John Wiley & Sons, vol. 12(1), January.
    5. Johannes Lundberg, 2022. "Agency Theory’s “Truth Regime”: Reading Danish Pension Funds’ Decisions Regarding Shell from the Perspective of Agency Theory," Sustainability, MDPI, vol. 14(22), pages 1-15, November.
    6. Muñoz, Fernando, 2021. "Carbon-intensive industries in Socially Responsible mutual funds' portfolios," International Review of Financial Analysis, Elsevier, vol. 75(C).
    7. Paula Danyelle Berrêdo & Odilanei Morais dos Santos & Hafez Abdo & Marcelo Álvaro da Silva Macedo & Luciano Dias Losekann, 2024. "Energy transition: Assessing oil companies' compliance with their disclosed environmental strategic positioning," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(4), pages 3517-3534, July.
    8. Chenet, Hugues & Ryan-Collins, Josh & van Lerven, Frank, 2021. "Finance, climate-change and radical uncertainty: Towards a precautionary approach to financial policy," Ecological Economics, Elsevier, vol. 183(C).
    9. Gordon L Clark & Adam D Dixon, 2024. "Legitimacy and the extraordinary growth of ESG measures and metrics in the global investment management industry," Environment and Planning A, , vol. 56(2), pages 645-661, March.
    10. Vasundhara Saravade & Olaf Weber, 2020. "An Institutional Pressure and Adaptive Capacity Framework for Green Bonds: Insights from India’s Emerging Green Bond Market," World, MDPI, vol. 1(3), pages 1-25, November.
    11. Judit Oláh & József Popp & Szabolcs Duleba & Anna Kiss & Zoltán Lakner, 2021. "Positioning Bio-Based Energy Systems in a Hypercomplex Decision Space—A Case Study," Energies, MDPI, vol. 14(14), pages 1-23, July.
    12. Louis Daumas, 2021. "Should we fear transition risks - A review of the applied literature," Working Papers 2021.05, FAERE - French Association of Environmental and Resource Economists.
    13. Nadia Ameli & Paul Drummond & Alexander Bisaro & Michael Grubb & Hugues Chenet, 2020. "Climate finance and disclosure for institutional investors: why transparency is not enough," Climatic Change, Springer, vol. 160(4), pages 565-589, June.
    14. Savannah Cox, 2022. "Inscriptions of resilience: Bond ratings and the government of climate risk in Greater Miami, Florida," Environment and Planning A, , vol. 54(2), pages 295-310, March.
    15. Neil Gunningham, 2020. "A Quiet Revolution: Central Banks, Financial Regulators, and Climate Finance," Sustainability, MDPI, vol. 12(22), pages 1-22, November.
    16. Benjamin Braun & Brett Christophers, 2024. "Asset manager capitalism: An introduction to its political economy and economic geography," Environment and Planning A, , vol. 56(2), pages 546-557, March.
    17. Albina Gibadullina, 2024. "Who owns and controls global capital? Uneven geographies of asset manager capitalism," Environment and Planning A, , vol. 56(2), pages 558-585, March.
    18. Parfitt, Claire, 2024. "A foundation for ‘ethical capital’: The Sustainability Accounting Standards Board and Integrated Reporting," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 98(C).
    19. Matthew Archer, 2024. "Governing through ESG and the green spirit of asset manager capitalism," Environment and Planning A, , vol. 56(2), pages 662-678, March.
    20. Monk, Alexander & Perkins, Richard, 2020. "What explains the emergence and diffusion of green bonds?," Energy Policy, Elsevier, vol. 145(C).
    21. Yevheniia Antoniuk, 2023. "The effect of climate disclosure on stock market performance: Evidence from Norway," Sustainable Development, John Wiley & Sons, Ltd., vol. 31(2), pages 1008-1026, April.

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