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Climate finance and disclosure for institutional investors: why transparency is not enough

Ameli, N; Drummond, P; Bisaro, A; Grubb, M; Chenet, H; (2019) Climate finance and disclosure for institutional investors: why transparency is not enough. Climatic Change 10.1007/s10584-019-02542-2. (In press). Green open access

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Abstract

The finance sector’s response to pressures around climate change has emphasized disclosure, notably through the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). The implicit assumption—that if risks are fully revealed, finance will respond rationally and in ways aligned with the public interest—is rooted in the “efficient market hypothesis” (EMH) applied to the finance sector and its perception of climate policy. For low carbon investment, particular hopes have been placed on the role of institutional investors, given the apparent matching of their assets and liabilities with the long timescales of climate change. We both explain theoretical frameworks (grounded in the “three domains”, namely satisficing, optimizing, and transforming) and use empirical evidence (from a survey of institutional investors), to show that the EMH is unsupported by either theory or evidence: it follows that transparency alone will be an inadequate response. To some extent, transparency can address behavioural biases (first domain characteristics), and improving pricing and market efficiency (second domain); however, the strategic (third domain) limitations of EMH are more serious. We argue that whilst transparency can help, on its own it is a very long way from an adequate response to the challenges of ‘aligning institutional climate finance’.

Type: Article
Title: Climate finance and disclosure for institutional investors: why transparency is not enough
Open access status: An open access version is available from UCL Discovery
DOI: 10.1007/s10584-019-02542-2
Publisher version: https://doi.org/10.1007/s10584-019-02542-2
Language: English
Additional information: © The Author(s) 2019. This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/).
Keywords: Institutional investors, Low-carbon investment, Disclosure, Efficient markets hypothesis, Climate finance, Planetary economics
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment > Bartlett School Env, Energy and Resources
URI: https://discovery.ucl.ac.uk/id/eprint/10085654
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