Climate transition risk and its implications on energy businesses

Abstract

In the financial sector, there are new types of risks and opportunities related to climate change, like transition or physical risk, but until a few years ago financial actors seemed not to have recognized a connection between climate change and finance.

Since 2015 Paris Agreement on Climate Change there was growing attention from financial supervisors and central bankers on the implications of climate risk for financial stability; now financial actors explicitly recognize climate change as a new source of financial risk and several initiatives have been implemented to enable the disclosure of climate-related financial risks. The first chapter of the thesis describes the policy landscape regarding International Climate Policy and the principal initiatives concerning financial risk connected to climate change.

Even if there has been impressive growth in sustainable finance, all economies failed to reduce emissions under Paris Agreement; as a matter of fact, this objective requires a deep transformation of production and energy systems. The financial system has a primary role in this transformation process with the reallocation of funds from high to low-carbon activities and new green investments. Climate-related risk is the key since it drives financial actors’ investment decisions: in the second chapter of the thesis the concept of "climate transition risk" will be analyzed. Transition risk is both a risk and an opportunity for those businesses which will face a technological transition necessary to reduce GHG emissions and meet Paris Agreement objectives.

In the last part of the thesis some European companies from the Energy sector, more or less exposed to transition risk, are analyzed to implement their Equity valuation formula. In particular, the focus will be on how these companies foresee scenarios of technological and productive change and if they respect the scenarios they predicted, in order to understand how it impacts transition risk.