Applied Mathematics Colloquia by Agostino Capponi: Sustainable Investing and Climate Risk Capital Allocation
Speaker: , professor of industrial engineering and operations research, Columbia University
Title: Sustainable Investing and Climate Risk Capital Allocation
Abstract:
In the first part of this talk, we study the design of strategies that a sustainable investing fund should adopt to reduce emissions without inducing firms to excessively engage in the reallocation of industrial pollution. We show that the strategy choice determines the distribution of reallocation risk across the pool of productive assets. Our competitive equilibrium model predicts that complying with sustainable targets affects downstream consumption markets, creating strategic complementarity or substitution in compliance decisions, which depends on the mass of environmentally concerned investors. We demonstrate that limiting to green screening strategies is suboptimal under worst-case scenarios of ex-post firm-investor matches in the presence of leakage buyers. Unconventional strategies, such as reduction or investment screening, are more effective at mitigating the reallocation of industrial pollution.
In the second part of this talk, we discuss the allocation of climate risk capital, and outline how the use of risk measures can provide a useful framework to go beyond existing methods in the climate finance literature, providing new tools to study long-term mitigation and adaptation. (based on joint work with Felipe Verastegui-Grunewald and Jay Sethuraman).
Applied Mathematics Colloquium