Green Finance

The module introduces students to the topic of green finance and its potential contribution to a sustainable economy in the context of climate change and the transition to a low-carbon economy. Specifically, the module supports students in understanding how climate and other environmental risks create potential financial risks in banking and capital markets and analyses the role of financial actors in driving and potentially mitigating these risks. Students will be exposed to both traditional and alternative risk management approaches and investment theory frameworks used to process and quantify these risks, as well as a range of case studies on the role and impact of institutional investors, banks, financial supervisory authorities and governments in aligning financial markets with climate and environmental goals. Students will obtain a strong qualitative grounding building a fundamental understanding of the linkages between the real economy, environmental risk and financial markets. Moreover, students will be trained in quantitative research, getting hands-on experience in working with complex and varied climate and portfolio datasets drawing on real life analytical examples across thousands of equity and bond funds. The module will help students to obtain skills necessary to work and do research in a cutting-edge area of finance and environment that is increasingly becoming an important topic for both financial institutions and financial authorities.

Objectives and learning outcomes of the module

On successful completion of this module a student will be able to:

• Gain a thorough understanding of how capital markets work and their interface with the real economy, from both a theoretical and practitioners' perspective;
• Recognise the quality and challenges related to using climate scenarios and climate data in financial analysis, and be able to critically evaluate the caveats of different data sets, as well as apply them in practice;
• Develop a fundamental understanding of what defines environmental trends and the potential risk and opportunity they present to financial markets, with a particular emphasis on climate risks;
• Create overview of the range of approaches in environmental risk modelling at physical asset, company, equity, credit, portfolio, and financial market level;
• Create an in-depth understanding of the range of financial policy instruments and initiatives and their potential with regard to integrating environmental constraints in financial policy and supervisory framework.
• Critically evaluate the potential impact of financial markets on the real economy and the sustainable development challenge.

Method of assessment

AS1 - 25% / AS2 - 40% / OR1 - 10% / PR1 - 25%

Suggested reading

• Dupré, S. and H. Chenet (2012), Connecting the Dots between Climate Goals, Portfolio Allocation and Financial Regulation. Paris: 2° Investing Initiative.
• Griffin, P.A., A. Myers Jaffe, D.H. Lont and R. Dominguez-Faus (2015), “Science and the Stock Market: Investor’s Recognition of Unburnable Carbon,” Energy Economics 52 (A), 1-12.
• IISD and DRC (2015), Greening China’s Financial System. Winnipeg and Beijing: Institute for Sustainable Development and Development Research Center of the State Council.
• Kidney, S. et al. (2015), Shifting Private Finance towards Climate-Friendly Investments. Report for the European Commission DG Climate.
• McGlade, C. and P. Ekins (2015), “The Geographical Distribution of Fossil Fuels Unused When Limiting Global Warming to 2°C,” Nature 517, 187-190.
• OECD (2017), Investing in Climate, Investing in Growth. A Synthesis. Paris: Organisation for Economic Cooperation and Development.
• Robins, N. and S. Zadek (2016), The Financial System We Need: From Momentum to Transformation. Geneva: UNEP Inquiry into the Design of a Sustainable Financial System.
• Thomä, J., S. Dupré and M. Hayne (2018), “A Taxonomy of Climate Accounting Principles for Financial Portfolios,” Sustainability 10, 328, 1-18.
• Volz, U. (2017), On the Role of Central Banks in Enhancing Green Finance. Geneva: UNEP Inquiry into the Design of a Sustainable Financial System.
• Vörösmarty, C.J., V. Rodríguez Osuna, D.A. Koehler, P. Klop, J.D. Spengler, J.J. Buonocore, A.D. Cak, Z.D. Tessler, F. Corsi, P.A. Green, and R. Sanchez (2018), “Scientifically Assess Impacts of Sustainable Investments,” Science 359 (6375), 523-525.

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