HSBC Reserve Management Trends 2022

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PREORDER Climate Change: Managing the Financial Risk and Funding the Transition

AVAILABLE FOR PREORDER Climate Change: Managing the Financial Risk and Funding the Transition serves as a practical and accessible reference for an essential understanding of climate-related risks and opportunities in financial institutions. Editor Jing Zhang has gathered more than 30 experts from world leading financial and consultant institutions in a four part book that focuses on climate change as the most profound challenge our social, political, and economic systems have ever faced.

£85.00
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ISBN
978-178272-440-7
 

Climate change is the most profound challenge our social, political, and economic systems have ever faced. We are at an inflection point in how to deal with it. On the one hand, climate change poses significant, emerging risks to financial institutions and financial stability. The risks are not well understood, measured, or quantified as financial institutions try to incorporate them effectively into their risk management practices. On the other hand, massive amounts of capital will be required to finance climate resilience and transition, creating significant demand for new financial products and services.

One of our most prolific editors Jing Zhang has gathered more than 30 experts from world leading financial and consultant institutions, including commercial banks, institutional asset managers, insurance firms, strategic consultancies and climate specialists, to contribute 16 chapters. Climate Change: Managing the Financial Risk and Funding the Transition serves as a practical and accessible reference for an essential understanding of climate-related risks and opportunities in financial institutions.

The book is structured into four parts:
Part 1: Overview
Explains how climate change manifests as a source of economic and financial risk. Chapters in this section lay the foundation for the subsequent sections by describing climate change’s regulatory and legislative landscape within the financial sectors and providing an overview of climate risk tools and analytics.

Part 2: Framework, Methodology and Tools
Focuses on the frameworks, methodologies, and tools for assessing and managing the financial impacts of climate change. Chapters cover critical details of identifying and modelling physical and transition risks and embedding the results in decision-useful financial metrics.

Part 3: Managing Climate-Related Risk
Features a practical set of topics for managing climate-related risks, from incorporating climate change in asset allocation and portfolio construction in investment management, constructing a net-zero investment portfolio, to special considerations for small financial institutions such as community banks.

Part 4: Climate Finance
Discusses funding climate resilience, adaptation, and the transition to a low-carbon economy.

More Information
ISBN 978-178272-440-7
Navision code MAZZ
Publication date 15/08/2022
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Jing Zhang - Editor

The co-authors represent over 30 experts from world leading financial and consultant institutions, including commercial banks, institutional asset managers, insurance firms, strategic consultancies and climate specialists.

The editor's and co-authors’ respective biographies are as follows:

Indrani De is Global Head of Investor Strategy at DBRS Morningstar, where she leads an initiative to increase connectivity with the largest credit investors. She was previously Managing Director and Head of Research at the Solutions Group in Nuveen, TIAA’s investment arm, and before that was Senior Director of Quantitative Research at New Amsterdam Partners and an investment analyst for GE Capital. Indrani has deep expertise in responsible investing, has published research on ESG and impact investing, and is a board member and prior president of the Society of Quantitative Analysts. She has also been a speaker at leading industry conferences, and been quoted in numerous major media outlets. Indrani holds an MBA from the City University of New York with full merit scholarship, and an MBA from the Indian Institute of Management (Bangalore), and the CFA and PRM designations.

James T. Edwards is a director of research and modelling at Moody's Analytics, where he leads the initiative to model climate risk within their single name credit and financial risk analytics, including the development of climate-adjusted EDFs. He additionally works in the development of Moody's Analytics structural credit risk models, provisioning tools and fixed income valuation products. James is based in New York City and holds a PhD in economics from the University of Chicago.

Gopal Erinjippurath is CTO and Head of Product at Sust Global, and has led the Analytics Engineering team at Planet Labs. He is known for agile engineering execution from concept to scalable high-quality products, has been a speaker at global industry conferences, and presented his research at leading technical conferences in the machine-learning space. Previously, Gopal managed teams working on industry-leading analytics products from early concept demonstrations to multiple customers at Captricity and Harvesting Inc, where he advised the CEO. He has also led the algorithm engineering development of Dolby’s first imaging display product, the Dolby Professional Reference Monitor. Gopal holds an MS in electrical engineering from University of Southern California and completed the Ignite Program, connecting technologists with new commercial ventures, at the Stanford Graduate School of Business.

Josh Gilbert is Chief Executive Officer and co-founder at Sust Global, the leading provider of climate analytics and APIs. He is a global expert and leader in climate tech and sustainable finance, having worked across climate tech, cleantech and geospatial analytics. Josh is a thought leader and regular speaker on climate tech sustainable finance. He spoke at COP26 and is a published author on geospatial analytics and climate finance. Josh is quoted in publications such as TechCrunch, Reuters and Financial Times. He holds a BA and MSc in international development and economics from the University of London.

Pierpaolo Grippa is a senior economist in the IMF’s Monetary and Capital Markets Department. Since joining the Fund in 2013, he has participated in eight country financial stability assessments (as banking expert, Basel Core Principles’ assessor, solvency/liquidity stress tester, climate risk analyst), contributed to policy analysis for the financial sector, led or conducted eight technical assistance missions, and published a few working papers. Prior to joining the IMF, Pierpaolo worked at the Banca d’Italia in banking supervision and, as a head of unit, on policy and regulation. He holds a PhD in economic analysis from the University of Rome and an MA in economics from the University of Essex.

Michael L. Gullette is Senior Vice President, Tax and Accounting at the ABA, where he has led their efforts across a range of tax and financial reporting issues with accounting standard-setters and governmental agencies and representatives worldwide. He is a regular speaker at accounting and investor forums, and contributed to the book The New Impairment Model under IFRS 9 and CECL. Mike is also author of the many CECL implementation discussion papers, and leads the ABA’s efforts to assess disclosure and measurement challenges to banks related to ESG topics and climate risk. He participates in the Value Reporting Foundation’s Standards Advisory Group, and has over 35 years of experience in financial service industries, starting his career at EY, and has been controller of a life insurance company, CFO of an international charity and was also at Freddie Mac.

Dapeng Hu is Managing Director, Global Head of Analytics Research and Modeling, Aladdin Sustainability Lab at BlackRock, where he is responsible for the development of sustainability and climate analytics in Aladdin, BlackRock's portfolio management and enterprise risk system. Previously, he was a co-head of the Financial Modeling Group and Head of the Structured Finance and Mortgage Modeling team at BlackRock. Prior to joining BlackRock, Dapeng worked for Wells Fargo and Citigroup, and before that was a member of the research faculty at the Real Estate Center at the Wharton School, University of Pennsylvania. He earned a BS degree from Peking University, an MS degree from the Chinese Academy of Sciences and a PhD from University of Pennsylvania.

Mark (Xiaoyun) Hu is a quant researcher in the Aladdin Sustainability Lab at BlackRock. Prior to joining BlackRock, he was at JP Morgan where he worked on commodity modelling and pricing. Mark’s areas of interests are financial modelling and sustainable investing.

Tony Hughes is an associate director for Grant Thornton in London, where he specialises in credit risk consulting and helping clients meet the challenges of sustainable banking. Previously, he was Managing Director and Head of Consumer Credit at Moody's Analytics in Philadelphia. Tony has extensive experience developing stress tests and predictive analytics for banks and insurers around the world, has contributed several hundred articles to industry publications and, for the past five years, has been a columnist for the Global Association of Risk Professionals (GARP). He holds a PhD in econometrics from Monash University in Australia.

Kirill Katsov is a partner at the Boston Consulting Group, where he leads the model development and model risk management topics. He is an expert in executing high-profile and complex strategic data and analytics initiatives for global Fortune 500 clients, and has more than 15 years of experience as a desk quant and risk manager with a cross-functional and cross-asset skillset. Kirill holds a PhD in physics from the University of Maryland.

Chi W. Lai is a managing director at BlackRock, where he works with leadership teams across the Americas, EMEA and Asia–Pacific on driving client service strategy. He has over 20 years of experience advising leading financial institutions both in the public and private sectors on executing complex, multi-faceted assignments centred around financial strategies, market and business innovation, capital markets transactions, sustainability/climate risk, operational resilience, and digital transformation. Chi holds an MBA from Yale University and dual BA, BSE degrees in economics and computer science from the University of Pennsylvania.

Juan M. Licari is a managing director at Moody's Analytics, where he and team members are responsible for the research and analytics that enable Moody’s quantitative solutions, in addition to helping customers solve complex business problems, adding value through data and analytics through specialisation in solutions that help understand, quantify, manage and integrate risk. He is a public speaker at risk management events and economic conferences worldwide, and is a thought leader in the risk management industry with frequently cited research publications. Juan holds PhD and MA degrees in economics from the University of Pennsylvania and graduated summa cum laude from the National University of Cordoba in Argentina. He is also enrolled in the executive MBA from the University of Cambridge, and is an ambassador for Moody’s Diversity, Equity and Inclusion initiatives.

Amit Madaan is Managing Director and head of modelling and research for climate physical risks for the Aladdin Sustainability Lab at BlackRock, where he is responsible for building their analytical capabilities on the impact of climate change risks on financial instruments. Previously, he was co-head of commercial credit modelling and research. Amit has published extensively, including co-authoring BlackRock’s publication "Getting Physical: Scenario Analysis for Assessing Climate-related Risks” and a chapter in The Handbook of Fixed Income Securities. He holds a BTech in mechanical engineering from the Indian Institute of Technology, Madras, and an MBA from Emory University, Atlanta.

Samuel Mann is an economist at the International Monetary Fund in Washington, DC, where his research focuses on international macroeconomics and finance. He has contributed extensively to the academic and policy literature on topics such as the transmission of monetary policy, exchange rate determination and capital controls. Before joining the IMF in 2019, Samuel worked as an economist and strategist in the research department of Bank of America Merrill Lynch. He holds a PhD from the University of Cambridge.

Duncan Martin is a senior advisor at Boston Consulting Group and the Chair of the Board Risk Committee at Chetwood Financial. Previously, he was the co-founder and co-head of the global risk and compliance team at BCG, and he has over 25 years of experience in risk management and compliance as both a consultant and practitioner. Duncan has an MA from Cambridge, an MBA from Wharton, an MA from the Lauder Institute and is working on an MSc from UCL.

James Mackintosh is a managing director and partner at Boston Consulting Group, where he leads the UK and Benelux Risk and Compliance Team. He has more than 20 years of experience working with financial institutions and regulators on topics including ERM, credit risk, balance-sheet management, process re-design and public policy issues. James holds a first class degree in physics and philosophy from Oxford University.

Joss Matthewman is Senior Director of Climate Change Product Management and Strategy at RMS. Previously, he was Head of Catastrophe Exposure Management at Hiscox, responsible for natural catastrophe, war, terror and political violence exposure management and reporting across the group. Before joining Hiscox, Joss spent seven years in model development at RMS, where he worked on the North Atlantic Hurricane and Asia Typhoon models, before being appointed Head of Storm Surge Modelling. During this period, he joined the PRA working group on climate change, which he continues to engage with. Joss’ published areas of research include stratospheric sudden warmings and the impact of sea ice on global atmospheric teleconnections. Prior to entering the insurance industry, he gained a PhD in applied mathematics from UCL and worked as a postdoctoral researcher in climate science at the University of California, Irvine.

Christopher A. McHugh is a principal enterprise fellow at the University of Southampton and a senior advisor to the International Association of Credit Portfolio Managers, where he works with development banks and export credit agencies. His research focuses on the private sector operations of development banks. Chris was previously the founder and director of the Centre for Sustainable Finance at The London Institute of Banking & Finance, and lectures on derivatives, risk management and sustainability. He has over 20 years of experience in financial markets, trading and structuring derivatives and securities at HSBC, Credit Suisse, Deutsche Bank and Merrill Lynch.

Zubin Mogul is a partner at a leading global consulting firm. He has more than 20 years of experience in advising senior executives in risk management, banking, capital markets and insurance, and is a thought leader in blockchain and cryptocurrency technology and applications. Zubin’s interests also include model risk, scenario analysis, climate change and stress testing.

Robert Muir-Wood is Chief Research Officer at Risk Management Solutions with more than 25 years of experience in catastrophe loss modelling. He was a lead author for the 2007 4th IPCC Assessment Report and the IPCC 2011 Special Report on Extremes, and has written many articles and research papers on catastrophe risk, and in the book The Cure for Catastrophe, which explores the historical response to disaster science and the role of catastrophe loss modelling. Robert has a master’s degree in natural sciences and a PhD in earth sciences from the University of Cambridge.

Olcay Ozkanoglu heads the ESG and Climate Risk Research Team within the Portfolio Research Group of Moody’s Analytics. Her research interests include developing models for credit risk and its links to climate change, carbon transition, and macroeconomics. Since joining Moody’s Analytics, Olcay has worked on portfolio credit risk research for risk management products as well as on quantitative projects involving direct cooperation with banks, asset managers, insurance companies, and corporations globally. She has presented new research at Moody’s Analytics webinars as well as external conferences, and has many years of experience running an advanced quantitative course that included various aspects of credit portfolio theory and the modelling of credit instruments to Moody’s Analytics clients. Olcay has co-authored and peer reviewed several white papers that have been published publicly or available to Moody’s Analytics clients.

Christopher Palazzolo is a principal and Head of Responsible Investment at AQR Capital Management, where he leads their ESG initiatives globally, after previously serving as Head of AQR Capital Management Europe. He is co-author of several articles, including “(Car)Bon Voyage: The Road to Low Carbon Investment Portfolios”, “Clearing the Air: Responsible Investment”, “Risk Parity: A Supplement to Traditional Portfolios, Not Their Replacement”, “Inflation in 2010 and Beyond (Parts I and II)” and “Eurozone Inflation Update: Will ECB Actions Match its Rhetoric?”. Christopher is on the Advisory Council of the AQR Asset Management Institute at London Business School, a member of AIMA’s Global Responsible Investment Committee, and was previously a member of the UNPRI’s ESG DDQ Working Group. He earned a BA in political science with a concentration in economics from Amherst College, an MBA and MPA from Harvard University, and is a CFA charterholder.

Joe Pigg is Senior Vice President and Senior Counsel for Sustainable Banking and Mortgage Finance at the ABA, where he has provided counsel on housing, real estate finance, community and economic development, Federal Home Loan Bank and other government-sponsored enterprise-related issues. At ABA, he oversaw the creation of their Federal Home Loan Bank Committee, and its ESG Working Group and Climate Task Force. Previously, he was a legislative representative for the City of New York, and a banking aide to US Representative Doug Bereuter of Nebraska. Joe worked closely on the development of the HUD Section 184 Indian Housing Loan Guarantee programme, as well as the development and implementation of a variety of rural housing programmes. He graduated with honours from the University of Nebraska, where he received a BA in English literature, and Georgetown University Law Center, where he earned his JD.

Lukasz Pomorski is a managing director and head of ESG research at AQR Capital Management, where he is responsible for the planning and oversight of their responsible investment research efforts across all asset classes. He is a member of the PRI’s Hedge Fund Advisory Committee and serves on Qontigo’s Sustainable Investment Advisory Board. Lukasz is also a lecturer at Yale University, where he teaches a course on ESG investing. Prior to AQR, he was an assistant director for research at the Bank of Canada and an assistant professor of finance at the University of Toronto. Lukasz’s research has been published in leading academic and practitioner journals, and won several best paper awards. He earned a BA and MA in economics from the Warsaw School of Economics, an MA in finance at Tilburg University, and a PhD in finance at the University of Chicago.

Natalie Ambrosio Preudhomme is an assistant vice president, outreach and research, at Moody’s ESG Solutions, where she leads thought leadership for climate, writing and presenting on assessing and managing physical and transition risks across asset classes. She joined Moody’s from the acquisition of Four Twenty Seven, where she managed communications, publications and thought leadership, translating science-driven risk analytics into actionable insights. Natalie has authored multiple book chapters and white papers on climate risk disclosure, climate resilience and integrating climate risk into financial risk management. Previously, she helped develop an assessment of US cities’ vulnerabilities to climate change and their readiness to adapt, at the Notre Dame Global Adaptation Initiative. Natalie holds a BS in environmental science and a certificate in journalism, ethics and democracy from the University of Notre Dame.

Shubhin Puri is a quant researcher and modeller at the Aladdin Sustainability Lab, BlackRock, where he is responsible for developing climate risk models and financial models for quantifying the impact of climate risk on various asset classes. He has over 12 years of experience in statistical and financial modelling. Shubhin holds a BTech in chemical engineering from the Indian Institute of Technology, Roorkee, and an MBA from NITIE, Mumbai.

Glenn D. Rudebusch is a senior fellow at the Brookings Institution with the Hutchins Center on Fiscal & Monetary Policy and a senior fellow at New York University in the Volatility and Risk Institute of the Stern School of Business. Previously, he spent several decades in economic research at the Federal Reserve Board and Federal Reserve Bank of San Francisco, including as Research Director and Senior Policy Advisor. Glenn has published over 100 academic and policy papers in macroeconomics, finance, and monetary policy, and was instrumental in introducing climate change considerations into the Federal Reserve’s analysis and policy.

Nick Silitch is Senior Vice President, Chief Risk Officer of Prudential Financial, where he oversees its risk management infrastructure and risk profile across all business lines and risk types. He is Chairman of Prudential’s Enterprise Risk Committee, and a member of its Senior Management Council. Outside Prudential, Nick is Chair of the North American Chief Risk Officers’ Council and a member of the Advisory Council for the International Association of Credit Portfolio Managers.

Paul Smith has worked for the climate team at UNEP FI for over three years, working on climate risk issues with investors and banks, while leading on adaptation finance in collaborations with the Global Commission on Adaptation, the Coalition for Climate Resilient Investment and MinterEllison on liability risks from climate change. He is a collaborator on UNEP FI’s TCFD programme and author of “The Climate Risk Landscape” report, which provides an overview of the regulatory landscape and risk analytics for financial institutions. Before joining UNEP FI, Paul worked as an engineer focusing on hydroelectricity and flood risk management, before leading the EU’s cooperation programme on infrastructure, energy and the environment in Liberia and Somalia. He has a master’s degrees from Imperial College London, the Swiss Federal Institute of Technology and the London School of Economics.

Kenneth Wee is a managing director at Accenture, where he leads the development of ESG and climate risk data and analytics assets globally at their Centre for Data and Insights, advising clients on how to measure, analyse and improve their ESG performance. He has 20 years of experience in analytics, risk management and sustainability, and has three degrees from Stanford University.

Louie Woodall is the Editorial Lead at Manifest Climate, a leading climate change solutions technology provider. He is also the editor of Climate Risk Review, a newsletter on the intersection of climate change and the financial sector. Louie holds a modern history and politics degree from the University of London.

Jing Zhang is the Head of Climate Research at the Value Reporting Foundation, part of the ISSB, where his roles include responsibilities in standard setting, market engagement, and external communications for climate-related areas. He also serves as an advisor to several data and analytics firms. Previously, Jing was the Global Head of Quantitative Research at Moody’s Analytics. He started his career with KMV, where he then managed their research operations, making major contributions to many quantitative models widely used in the industry. He has published numerous books and research papers on financial risk, including five by Risk Publications. Additionally, Jing is the Board Chair of Hack the Hood, a non-profit organisation dedicated to promoting economic mobility for the under-represented youth of colour. Jing has a PhD from the Wharton School of the University of Pennsylvania and a master’s degree from Tulane University.

Alice Zhao is the Head of Talent at Valon, a New York City-based fintech start-up championing homeowners on their financial journey through a tech-enabled mortgage-servicing platform. Previously, she was a vice president within the Global Stock Selection team as a quantitative researcher at AQR Capital Management, where she improved their long-only and long-short strategies, worked alongside the ESG and discretionary macro teams, and also sat on the recruiting committees within AQR’s Pride Network and Women’s Initiative Network. Alice graduated with a BS in statistics and mathematics from Harvard College.

 

* This is a pre-publication Table of Contents and may be subject to changes.

Chapter Title
Foreword
Rob Fauber
Moody's Corporation

Introduction
Jing Zhang
International Sustainability Standard Board

Part I: Sustainabilty and Climate Change Overview

1 Sustainability for critical ecosystems: The future of risk management – more of the same or a new paradigm?
Nick Silitch
Prudential Financial

2 Climate change Is a source of financial risk
Glenn D. Rudebusch
Brookings Institution

3 The climate disclosure landscape in the finance sector
Paul Smith
Independent Climate Consultant

4 Green boxes? An overview of climate risk tools and analytics
Paul Smith
Independent Climate Consultant

Part II: A Framework, Methodology and Tools for Managing Climate-related Risk

5 Embedding climate change in financial metrics
Natalie Ambrosio Preudhomme, James Edwards, Juan Licari and Olcay Ozkanoglu
Moody's Analytics, Moody's ESG Solutions

6 Modeling climate physical risks
Dapeng Hu, Mark Hu, Amit Madaan and Shubhin Puri
Aladdin Sustainability Lab, BlackRock

7 Climate-related stress testing: Transition risks
Pierpaolo Grippa and Samuel Mann
IMF

8 Catastrophe risk modelling and climate change
Robert Muir-Wood and Joss Matthewman
RMS, a Moody's Analytics Company

9 Evidence-based climate stress testing
Tony Hughes
Grant Thornton

Part III: Managing Climate-Related Risk

10 Climate risk drives a new paradigm in risk management
Kenneth Wee, Kirill Katsov, Chi Lai, Duncan Martin, James Mackintosh and Zubin Mogul
Boston Consulting Group

11 Incorporating climate change in asset allocation and portfolio construction
Indrani De
DBRS Morningstar

12 (Car)Bon voyage: The road to low carbon investment portfolios
Christopher Palazzolo, Lukasz Pomorski and Alice Zhao
AQR Capital Management

13 Climate risk primer for community banks: Concepts and policies during a period of significant change
Mike Gullette and Joe Pigg
American Bankers Association

Part IV: Climate Finance

14 Next-generation analytics for climate finance
Josh Gilbert and Gopal Erinjippurath
Sust Global

15 Climate finance post-COP26
Louie Woodall
Climate Risk Review

16 Moblising private funding
Christopher A. McHugh
University of Southampton