CSR And Risk Management

🌍💼 How are global financial markets pricing the risk of transitioning away from fossil fuels? A recent paper by Patrick Bolton and Marcin Kacperczyk, published in The Journal of Finance, tackles this complex and highly relevant question. The study dives deep into the global pricing of carbon-transition risk — the risk companies face as they move towards carbon neutrality. The findings are nothing short of striking: companies with higher carbon emissions are seeing higher stock returns, a phenomenon that seems counterintuitive, but reflects the significant risks associated with carbon transition. More specifically, this paper uncovers that: 🔍 Firms with higher emissions levels and faster emission growth rates earn higher returns, suggesting investors are demanding higher premiums to offset the uncertainties of transitioning to cleaner energy. 🌱 Interestingly, countries with stricter climate policies see even larger carbon-transition risk premiums. This highlights a critical tension: as climate policy tightens, the financial risk for companies rises, making the transition both necessary and fraught with challenges. 🤔 What’s even more compelling is the insight that investors are focused not just on emission intensity but on absolute emissions. As we know, absolute reductions are what the world needs to meet global climate goals—yet this focus by investors points to a broader shift in market behaviour. 🔋 The role of country-specific factors such as governance structures, energy mix, and economic development levels further shapes how transition risk is perceived and priced. The higher the dependence on fossil fuels and the weaker the political framework, the greater the premium investors demand. This paper is a must-read for anyone involved in sustainable investing, ESG strategy, or climate finance. It’s clear: the financial world is waking up to the immense challenge of decarbonization, but the path is neither smooth nor uniform. 💬 What are your thoughts on the pricing of carbon-transition risk? How should companies and investors better prepare for the financial impacts of decarbonization? 🔗 Read the full paper here https://lnkd.in/e_Z9AZ7W #CarbonRisk #ClimateFinance #ESG #SustainableInvesting #Decarbonization #CorporateSustainability #ClimateChange

As sustainability becomes a more critical element of the CFO’s agenda, transforming how we approach growth and risk management is top of mind for the finance function. #CFOs are in the position to lead the charge. Here's what they can do:  - Transparent reporting: With new regulations on the horizon, transparent sustainability reporting is essential. CFOs are uniquely positioned to align these efforts with corporate strategy, supporting compliance and building trust with stakeholders.  - Strategic integration: By embedding sustainability into long-term planning, CFOs can drive growth and enhance financial performance. This approach helps mitigate risks and opens new opportunities for innovation and market leadership.  - Organizational engagement: Success in #sustainability requires company-wide buy-in. CFOs play a pivotal role in uniting the organization, from the boardroom to the factory floor, to embrace sustainable practices and drive meaningful change.  - Capitalizing on opportunities: Viewing sustainability as an opportunity rather than a cost can lead to new revenue streams and competitive advantages. Investing in sustainable technologies and processes can position companies as leaders in the low-carbon economy.  Our #PwCSustainability team is leading the way. We’re helping organizations find value and resilience through sustainability strategy—and I’m honored to be a part of it. https://lnkd.in/eQXxbSVp

Greenwashing risk in corporate sustainability 🌎 Greenwashing has become a critical concern for businesses aiming to communicate their environmental initiatives. Misleading or exaggerated claims not only harm reputations but also undermine trust among investors, customers, and other stakeholders. In today’s regulatory and market environment, credibility in sustainability is a business necessity, not an option. At its core, greenwashing often stems from a lack of rigor in sustainability practices. Common pitfalls include unsubstantiated claims, vague or misleading labels, and focusing on a single positive attribute while ignoring broader negative impacts. These actions can mislead stakeholders and dilute the value of genuine sustainability efforts, exposing companies to both reputational and financial risks. Greenwashing risks manifest across three critical dimensions of business: products, disclosures, and supply chains. Misrepresentation of product sustainability, overly ambitious corporate climate targets unsupported by data, and a lack of transparency in supply chains can all contribute to the perception of greenwashing. Regulatory frameworks like the CSRD and CSDDD now place greater emphasis on transparency and accountability, making non-compliance increasingly costly. Addressing greenwashing requires a strategic, business-oriented approach. This includes investing in rigorous data collection, third-party verification, and consistent messaging across all touchpoints. Aligning sustainability commitments with measurable outcomes not only reduces risks but also creates opportunities to build trust and attract purpose-driven investors and customers. In an era of heightened scrutiny, greenwashing is more than a reputational risk—it’s a missed opportunity to lead in a rapidly changing market. Businesses that prioritize transparent, data-driven strategies and integrate sustainability authentically into their operations will not only avoid greenwashing but position themselves as leaders in delivering real environmental and social value. Source: KPMG #sustainability #sustainable #business #esg #climatechange #climateaction #greenwashing

💡I came across this case study yesterday - a great illustration of the costs of climate liability risk for any carbon-intensive industry: 👉 In August 2017, Hurricane Harvey hit Texas and Louisiana causing severe flooding, loss of human life and economic losses, estimated at $125 billion. Science tells us climate change contributed to Harvey’s severity and impacts.   👉 Using attribution science (a scientific analysis which links climate-induced damage to emissions of a particular company), oil major Shell would have an annual liability of US$0.55 billion (550 million) if held liable for its contribution to two events with losses equal to those of Hurricane Harvey. 👉 In seven years between 2017 and today, this would make its liability equal to 3.85 billion (3,850 million). This amounts to more than half of the company’s profits in the second quarter of 2024 (reported at $6.3 billion).  Now Harvey does not happen every day. Yet progress in attribution science makes it possible to link corporate GHG emissions to hurricanes, floods, heatwaves, droughts, and wildfires, all of which are occurring with increased frequency and severity every year.     💡 Management of climate liability risk falls squarely within the duties of every director of every carbon-intensive business. Think emission mitigation strategies and transition planning. 💡Failure to manage it or outright mismanagement may lead to personal liability. I call this director’s cost of climate change - a case study for another time.  #climatechange #climaterisk #climatelitigation #law #liability #climateliability

ESG in ERM: A resilient approach to risk management ________________________________________ ERM, or enterprise risk management, is a holistic approach to identifying, assessing, and managing risks across an organization. ESG, or environmental, social, and governance, refers to the non-financial factors that can impact a company's performance and value. Implementing ESG in ERM can help organizations to: * Identify and manage ESG risks more effectively. ESG risks can have a significant impact on a company's bottom line, so it is important to identify and manage them effectively. ERM provides a framework for doing this in a systematic and comprehensive way. * Improve resilience. ESG risks are often interconnected, and can lead to cascading failures. ERM can help organizations to develop a more resilient risk management posture that can withstand complex and interconnected risks. * Enhance decision-making. ESG factors can have a significant impact on a wide range of business decisions, from strategic planning to investment allocation. ERM can help organizations to integrate ESG factors into their decision-making processes, leading to better outcomes for shareholders, stakeholders, and the planet. Here are some steps that organizations can take to implement ESG in ERM: 1. Conduct a value chain assessment. This will help to identify the ESG risks that are most relevant to the industry, organization and its stakeholders. 2. Test ESG preparedness. This can be done using a gap assessment tool to identify any gaps in the organization's risk management framework. 3. Discuss and review targets. This will help to ensure that the organization's ESG targets are aligned with its overall business strategy and risk appetite. 4. Set performance targets. This will involve establishing specific, measurable, achievable, relevant, and time-bound targets for each ESG risk. 5. Develop a performance dashboard. This will help to track the organization's progress towards its ESG targets and identify any areas where corrective action is needed. 6. Input into annual report, ESG report, and task force on climate-related financial disclosures (TCFD). This will ensure that the organization is transparent about its ESG performance and risks. 7. Manage incidents and lessons learned. This will help the organization to learn from its mistakes and improve its ESG risk management practices over time. By implementing ESG in ERM, organizations can improve their resilience, enhance their decision-making, and create a more sustainable future for their businesses. Please feel free to comment your view and please feel free to share the article (Disclaimer: Views are personal, should not be related to organisations view) #buildingEsg #circulareconomy #sustainablefinance #esgreporting #esgstrategy #esgrisk #climaterisk #climatechangeaction #climaterisks #india #emissions #esgratings #esg #cop28 #greenertogether #SDGs #sustainability #business #csr

Environmental, Social, and Governance (or whatever you call it) 𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 𝗱𝘂𝗲 𝗱𝗶𝗹𝗶𝗴𝗲𝗻𝗰𝗲 𝗰𝗮𝗻 𝗯𝗲 𝗮 (𝗰𝗼𝘀𝘁𝗹𝘆) 𝗮𝗻𝗱 𝗱𝘂𝗽𝗹𝗶𝗰𝗮𝘁𝗶𝘃𝗲 𝗺𝗮𝘇𝗲. Here are three areas where habitual overlap costs you time and money, and how you can fix them. 𝗥𝗶𝘀𝗸 𝗹𝗼𝘃𝗲𝘀 𝗰𝗼𝗺𝗽𝗮𝗻𝘆. One person's modern slavery assessment is another's fraud and corruption (e.g., 𝗶𝗳 𝘆𝗼𝘂𝗿 𝘀𝘂𝗽𝗽𝗹𝘆 𝗰𝗵𝗮𝗶𝗻 𝗶𝗻𝗰𝗹𝘂𝗱𝗲𝘀 𝗵𝘂𝗺𝗮𝗻 𝗲𝘅𝗽𝗹𝗼𝗶𝘁𝗮𝘁𝗶𝗼𝗻, 𝗜'𝗱 𝗯𝗲𝘁 𝗺𝘆 𝗵𝗼𝘂𝘀𝗲 𝘁𝗵𝗮𝘁 𝘁𝗵𝗲𝗿𝗲'𝘀 𝗮𝗹𝘀𝗼 𝗰𝗼𝗿𝗿𝘂𝗽𝘁𝗶𝗼𝗻 𝘁𝗼 𝗲𝗻𝗮𝗯𝗹𝗲 𝘁𝗵𝗮𝘁, 𝗮𝗻𝗱 𝗳𝗿𝗮𝘂𝗱, misrepresenting, misreporting, overcharging, etc.). For starters, try to 𝗷𝗼𝗶𝗻 𝘂𝗽 𝘁𝗵𝗲𝘀𝗲 𝘁𝗵𝗿𝗲𝗲 𝗮𝗿𝗲𝗮𝘀 𝗼𝗳 𝗵𝗮𝗯𝗶𝘁𝘂𝗮𝗹 𝗼𝘃𝗲𝗿𝗹𝗮𝗽: 💡 𝗥𝗶𝘀𝗸 𝗔𝘀𝘀𝗲𝘀𝘀𝗺𝗲𝗻𝘁: Don't do them in silos. When teams with varied backgrounds collaborate, they uncover insights others might miss. For instance, land acquisition risks span environmental (e.g., biodiversity), social (land clearance), and governance (e.g., corruption or fraud around titling).  💡 𝗧𝗵𝗶𝗿𝗱-𝗣𝗮𝗿𝘁𝘆 𝗠𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁: Knowing who you work with (third-parties), what they do, how they do it, and with whom they deal spans everything from sustainability certifications to worker welfare, conflicts of interest, fraud, etc. 💡 𝗦𝗽𝗲𝗮𝗸 𝗨𝗽: Employees shouldn't go to Grievance Mechanism A when they spot a toxic spill, Suggestion Box B when they see unqualified subcontractors operating heavy machinery improperly, or Whistleblower Line C if the security team is colluding with OCGs regarding scrap material theft. Speaking up at work must be simple: see something off, report it. Managing investment, E&S, and integrity risks can feel overwhelming. But 𝗰𝗼𝗺𝗽𝗹𝗲𝘅𝗶𝘁𝘆 𝗶𝘀𝗻’𝘁 𝘁𝗵𝗲 𝗲𝗻𝗲𝗺𝘆; 𝗳𝗿𝗮𝗴𝗺𝗲𝗻𝘁𝗮𝘁𝗶𝗼𝗻 𝗶𝘀. Integrating processes and simplifying reporting mechanisms reduces duplication, saves money, and uncovers risks that siloed approaches might miss. 𝗧𝗵𝗮𝘁'𝘀 𝘁𝗵𝗲 𝘄𝗵𝗮𝘁 𝗮𝗻𝗱 𝘁𝗵𝗲 𝘄𝗵𝘆. 𝗜𝗳 𝘆𝗼𝘂'𝗿𝗲 𝗰𝘂𝗿𝗶𝗼𝘂𝘀 𝗮𝗯𝗼𝘂𝘁 𝘁𝗵𝗲 𝗵𝗼𝘄, 𝗮𝘀𝗸 💪! #ESG #riskassessment #impactinvesting #duediligence #EthicalInvesting 

The primary concern among utility-scale solar developers and investors revolves around the risk of diminishing returns due to the cannibalization of photovoltaic (PV) capacity causing a downward pressure on energy prices within the market. Even modest surpluses of energy offered at no cost, have the capacity to lower the marginal prices in the day-ahead market. This effect becomes more pronounced as PV capacity continues to expand. Furthermore, the situation is compounded by the inherent predictability of when PV systems generate electricity. This temporal alignment of PV generation results in an ongoing, systematic reduction in PV electricity prices. This declining value of PV-generated electricity is often quantified as a reduction in the capture rate. The capture rate measures the volume-weighted average price that PV production receives in comparison to the overall average electricity price for a given month. The figure visualize he capture rate over the previous six years for DK1 and DK2. Historically, there has been a direct correlation between the reduction in PV earnings and the proportion of PV generation in the total energy supply. For instance, when PV contributes 20% of the energy supply, PV electricity prices tend to decline by approximately 20%. The critical question that arises is whether this rapid decrease in the capture rate will dissuade investors from pursuing utility-scale PV projects in Denmark or prompt a strategic shift toward co-locating PV installations with Battery Energy Storage Systems (BESS) as a means of mitigating the inherent investment risks associated with this evolving energy landscape. Hybrid Greentech - Energy Storage Intelligence

These pictures are not from a temporary scaffold. This is a real rooftop solar installation in Lucknow, Uttar Pradesh. The panels are world-class. But the structure? • Long, unsafe cantilevers • Slender, unbraced columns • Point loads on the slab • No wind resistance provisions This is not just poor design. It’s a serious safety hazard for families and neighbours. One strong storm could turn these panels into flying debris. Panels may last 25 years, but if the structure fails in 2 years, the entire system fails. A basic QC process must be made mandatory before 1) subsidy disbursal by Ministry of New and Renewable Energy (MNRE) REC Limited and 2) solar panel/inverter warranty acceptance by the manufacturers. This one step can stop malpractice and prevent not just financial loss, but potentially loss of life in the neighbourhood. As India moves ahead under PM - Surya Ghar: Muft Bijli Yojana focused on price, it’s time to bring quality and safety to the center of the conversation. Solar is not just about generation. It’s about trust. And trust begins with safety. Do you agree a mandatory QC check should be linked to subsidy release and warranty validation?

Carbon Price Uncertainty Depresses Decarbonization Investments. ❗ New Paper Alert (with Julian Terstegge and Maximilian Fuchs) - We construct a new market-based measure of carbon price uncertainty (the Carbon VIX) based on data from options on carbon allowances in the EU ETS. - Carbon price uncertainty is high and varies over time - Increases in carbon price uncertainty have large negative effects on expected decarbonization investments, consistent with real options theory. ➡ Policy makers can have as much impact on encouraging firms to decarbonize by reducing uncertainty about expected future prices as they have by raising the expected level of future prices Paper and Data to Download at https://www.carbonvix.org/ Abstract: We study the effects of carbon price uncertainty on firms’ decisions to decarbonize their operations. We first use information on the pricing of options on emission allowances in the European Emissions Trading System to create the Carbon VIX, a market-based high-frequency measure of carbon price uncertainty. Carbon price uncertainty is high, varies substantially over time, and experiences persistent shocks around major climate policy events. To explore the effects of carbon price uncertainty on expected aggregate decarbonization investments, we analyze its effect on the stock returns of firms that help other businesses decarbonize. To identify these “carbon solution providers,” we extract common types of decarbonization investments from a large survey of firms, and then identify companies that offer the associated goods and services. We find that the stock returns of these carbon solution providers vary positively with carbon prices, but negatively with carbon price uncertainty. The effect of increases in carbon price uncertainty on our proxy for expected decarbonization investments is economically large and of similar magnitude as the effect of declines in carbon prices. These findings support predictions from real options theory that firms may delay investments in decarbonization when faced with uncertainty about the future costs of emissions.

Timeless Management Concepts (6/10) It's been a bit, but I'm back with the sixth installment of my "Timeless Management Concepts" series! Today, we're diving into a framework that has been a constant companion since my IIMA days (1980-82): the SWOT (Strengths, Weaknesses, Opportunities, Threats) Analysis. Earlier, we looked into concepts of ‘Efficiency vs Effectiveness’, ‘Contribution Margin’, ‘Diminishing Marginal Utility’, and 'Opportunity Cost'. I recall that almost every project and presentation during my MBA invariably included a SWOT analysis. Its enduring relevance, despite its apparent simplicity, is truly remarkable. What makes SWOT so timeless? Originating from Albert Humphrey's pioneering work at the Stanford Research Institute in the 1960s-70s, SWOT provides a clear, structured framework to assess both internal capabilities and external market conditions. It empowers organizations to: ✅ Leverage Strengths: Maximize what they do well. ✅ Address Weaknesses: Improve areas of vulnerability. ✅ Seize Opportunities: Capitalize on favorable external trends. ✅ Tackle Threats: Mitigate external risks. Ultimately, SWOT helps decision-makers align internal strengths with external opportunities, prioritize capital, proactively mitigate risks, and foster crucial team alignment. Let's put this into practice with a relevant example: India's ambitious PM-Surya Ghar Muft Bijli Yojana, with an aim of one crore rooftop solar plants by March 2027. Here's a quick SWOT analysis on this initiative: ✳️ Strengths: 👉 Abundant Solar Resource: Most Indian states boast 4–7 kWh/m²/day solar irradiance. 👉Strong Policy Support: Central & state subsidies, coupled with net metering regulations. 👉Cost-Effectiveness: Declining solar module costs and reduced T&D losses from localized generation. ✅Weaknesses: 👉Discom Resistance: Revenue loss concerns from distribution companies. 👉Market Barriers: Limited consumer awareness, skepticism, high upfront costs, and lack of accessible credit. 👉Quality & Consistency: Risk of substandard installations and inconsistent procedures. ✅Opportunities: 👉Expanding Markets: Large rooftops available in growing real estate and MSME clusters. 👉Demand Drivers: Increasing corporate & government demand for green energy. 👉Innovative Models: Rise of RESCO (pay-as-you-save), group net metering, and peer-to-peer trading via blockchain. 👉Economic Impact: Significant job creation in installation and servicing. ✅Threats: 👉Policy & Financial Risks: Policy uncertainty, subsidy disbursement delays, and poor financial health of Discoms. 👉Operational Challenges: Grid integration complexities and generation inconsistency due to weather. 👉Behavioral Hurdles: Landlord-tenant disconnect. This example shows how SWOT helps in offering a strategic roadmap for even large-scale national initiatives. #SWOTAnalysis #StrategicPlanning #ManagementConcepts #BusinessStrategy #PublicPolicy #India #SolarEnergy #TimelessTools #Renewables