Transformative ideas: Study assesses better performance in climate risk management

"We used CDP scores and carbon intensity as metrics for climate performance, and as a proxy for financial performance we considered return on assets, company value (price-to-book ratio) and liquidity spread", she explains.
Administration
14 June 2024
Transformative ideas: Study assesses better performance in climate risk management

In practice, a master’s degree is a unique opportunity for professionals looking to improve their skills and knowledge in their area of activity. That is what Rebeca Lima, a graduate of the Professional Master’s in Finance and Economics Program at Fundação Getulio Vargas’ Sao Paulo School of Economics (FGV EESP), did in her thesis, which looked at whether better performance in climate risk management by companies is linked to good financial performance.

We used CDP scores and carbon intensity as metrics for climate performance, and as a proxy for financial performance we considered return on assets, company value (price-to-book ratio) and liquidity spread, she explains.

The possibility of applying the knowledge acquired to real-life situations also contributes to the development of innovative solutions and the generation of a positive impact in graduates’ respective areas of activity. Rebeca has worked all her career in climate policy, and for almost eight years she has been at a nonprofit organization that is the world’s largest corporate environmental data platform, called “CDP – Disclosure Insight Action.”

Read on to see the full interview with the former student about her research and its practical applications.

What will be the impact on society?

The results of my study may encourage companies to implement best practices in the area of climate risk and opportunity management by demonstrating that there is a positive correlation between better climate performance and returns. This is extremely relevant in the current context of tackling climate change, in which we need to redirect investments toward a truly sustainable and climate-resilient economy.

Why did you choose to study this subject?

I’ve been working with corporate sustainability, sustainable finance and climate policy for years, because I believe that corporations have a social responsibility to generate value for all stakeholders and not just their shareholders, while fostering a sustainable economy that protects people and the planet. However, I wanted to understand whether, in addition to the social role of corporations, there are also financial incentives arising from the implementation of these good practices.

What is your link to this topic?

As well as having worked all my career in climate policy, I have been for almost eight years at a nonprofit organization that is the world’s largest corporate environmental data platform, CDP – Disclosure Insight Action. We collect climate and environmental data from more than 24,000 organizations around the world and share it with financial institutions, companies and governments to enable informed decision making that converges with a more sustainable economy.

What results did you find? 

The return on assets results showed a positive, linear relationship for both CDP score and carbon intensity, indicating that improvements in climate performance are associated with an increase in profitability. We found a U-shaped relationship for CDP score and company value and a positive linear relationship for CDP score and liquidity, suggesting positive impacts of good climate management even using market-based metrics. However, for company value, this positive relationship is only observed after a minimum level of good management. In relation to company value and liquidity, an inverted U shape or negative linear relationship was found for carbon intensity.

You received a prize for your thesis. How did you feel about that?

Yes, I came second in the CFA Society Thesis Awards in 2021. I was very happy and honored by the recognition of my work and its contributions to society. It also demonstrated a growing and concrete demand from the financial sector for information and scientific studies on the financial effects of corporate practices that impact or are impacted by climate change. Incorporating this information into financial analysis in order to mitigate risks and redirect the flow of capital toward a more sustainable and climate-resilient economy is vital in the current context of climate emergency. It is therefore extremely positive that a recognized organization such as the CFA Society is paying attention and encouraging scientific output in this area.

This article is part of our Transformative Ideas series.

To find out more about FGV EESP’s Professional Master’s in Finance and Economics Program, click here.

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