Investment - Articles - Climate risk modelling research chair established


EDHEC-Risk Climate Impact Institute and Scientific Beta are pleased to announce the endowment of a research chair entitled "Upgrading Climate Scenarios for Investment Management". This new long-term research effort is part of the EDHEC-Scientific Beta Advanced Climate Investing Initiative and aims to address the pressing need for fit-for-purpose tools to integrate climate risks into investment management.

 While climate change increasingly becomes a tangible reality, with more frequent and severe extreme weather events, the bulk of damages to nature, people, and economies remains in the future. This makes historical data and traditional statistical estimation methods largely irrelevant to assess and manage climate risks and explains why climate scenario analysis and stress testing have taken central stage in the investor toolbox.

 In their current state however, they are rather crude what-if tools suited to assisting long-term strategic thinking about uncertainty and spotting fragilities to potential shocks. Considerable work is required to extend and repurpose climate scenarios for risk and investment management purposes. The critical challenge is to embed scenario analysis in a coherent probabilistic framework, enabling finance professionals to compute relevant risk and return metrics.

 EDHEC-Risk Climate Impact Institute Scientific Director Professor Riccardo Rebonato will lead the research effort. A nuclear physicist by training, Professor Rebonato has made notable contributions to quantitative portfolio theory and risk modelling and management and has held senior research positions in the financial industry.

 "We are delighted to support EDHEC-Risk Climate Impact Institute in this radical effort to bring climate-risk modelling tools to the next level", commented Scientific Beta Chief Executive Officer Kin Yee Ng. "We are looking forward to building on our partnership with EDHEC Business School to incorporate these advances into our index offerings and to continue to benefit from state-of-the-art academic research as Scientific Beta has always done since it was founded over ten years ago."

 "Embedding scenario analysis in a coherent probabilistic framework is a particularly tall order because of the considerable uncertainty around the physics and economics of climate change; delivering on this goal however would mark a major step forward in climate risk analysis and portfolio management. Professor Rebonato has assembled an exceptional team to tackle this challenge and we are grateful to Scientific Beta for their support. We look forward to presenting the first research results, which should be of particular interest to long-term investors", said EDHEC-Risk Climate Impact Institute Director Frédéric Ducoulombier.

 Frédéric Ducoulombier and Riccardo Rebonato will unveil initial findings from the research chair at the Scientific Beta Days Europe 2023 conference on November 14 & 15, 2023 at the Barbizon Palace in Amsterdam. The presentation will discuss the limitations of current modelling tools and outline strategies to transition from climate risk uncertainty to climate risk and portfolio management.

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