How can investors incorporate climate alignment into portfolio construction? Lionel presented an innovative three dimensional optimizer that allows investors to minimize climate impact while maximizing expected returns and minimizing risk. With climate awareness rising, this kind of tools will become widespread in the investment industry.

What is the impact of climate risk on investment portfolios? Clarisse Simonek discussed the economic and financial impacts of climate risk over the next five years to help investors identify opportunities for reducing climate-related investment risks. The presentation covered portfolio construction and diversification across different asset classes, regions and portfolios.

What is the impact of climate change on the default probability of corporate bonds and loans? Gianfranco Gianfrate discussed the relationship between a firm’s exposure to climate risks, measured as level of CO2 emissions and carbon intensity, and Merton’s distance-to-default, a measure of creditworthiness widely used by rating agencies and investors. He also addressed the policy implications and the threat the exposure to climate risks poses to the global financial stability.

How does exclusionary screening and ESG integration affect asset returns? To answer this, David Zerbib develops an asset pricing model with partial segmentation and disagreement.  A taste premium clarifies the relationship between ESG and financial performance. Two exclusion premia drive the exclusion effect.  The annual taste effect ranges from -1.09% to +0.11% for different industries and the average exclusion effect is 3%.

How can asset allocators fight climate change? We develop a global climate alignment database for asset allocators. We find that selecting firms with best climate practices across many sectors is as important to fight climate change as investing in “green” sectors. Hence, asset allocators can fight climate change while diversifying risks. Moreover, engagement can shave up to 1.3°C off a firm’s temperature. We discuss how asset allocators can use our results to design climate-friendly portfolios.

How can shareholders optimise their impact? Pierre-Yves answers this by sharing the key factors of successful engagement practices EthiFinance has identified. Choosing a theme with a lever for action, being precise about the expectations and creating conditions for dialogue are part of the answer. He illustrates these findings through case studies on improving working conditions in manufacturing in China and in nursing homes in France.