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Julien Chevallier, Université Paris VIII and IPAG Business School


Green finance investing and carbon stranded assets


In the spirit of the COP26 held in Glasgow, I will tackle two topics dedicated to climate change: 1) Low carbon indices & green investing 2) Carbon stranded assets. The topics are tied by investors’ interest and risk appetite for “green finance”. In the first topic, I explain how to construct a tracker of low carbon indices, and the rationale behind a low carbon index. I also visit such low carbon index performance versus industry benchmarks in a portfolio management exercise. I also consider the correlation of low carbon indices with aggregated stock markets, and compute its forecasting ability of the market stress. In the second topic, I consider that climate constraints are binding, and the oil-gas-coal giants cannot use their fossil fuel resources anymore (at least according to several scenarios of reduction, from 20% to 80%). I consider as well cuts in fossil fuel prices. From a sample of 17 major companies, I run simulations by 2050 to study the bankruptcy of these firms, absent any real change in their business model, such as a shift to renewables deployment in their energy mix. Both topics stand against the background of the fight against climate change, with scenarios of having a 50% chance to limit global warming to +1.5°C by 2100.