Climate and Financial Markets

Catalog description

Climate change might be the defining challenge of our times, with a wide range of effects on financial markets and the broader economy. At the same time, financial markets play an important role in financing the transition to a net-zero economy, and incentivizing firms and investors to adapt their strategies. In this course, we examine how climate risks—both physical and regulatory—affect firms, financial markets (including equity, corporate debt, green bonds, municipal bonds, insurance, and carbon markets), and markets for energy, real estate and mortgages. We also examine the role that firms’ disclosures and third-party information sources play. Because financial markets are shaped by the information that is available to market participants, we investigate the impact of ESG reporting and rating agencies, including the costs and benefits of regulating ESG reporting and the impact of greenwashing. In the second part of the course, we study how governments and private investors finance investments in climate technologies. Here, we discuss various financial instruments that have been developed to address climate-change concerns. Given the enormous importance of electrification as a pathway towards a low-carbon future, there is special emphasis on renewable energy finance and economics. We also discuss the latest evidence of how climate risk has shaped decisions inside organizations, such as spin-offs, hedging, and the structure of executive-compensation contracts.