Volatility and Risk Institute | Climate Risk

Climate risk is potentially the greatest financial risk of our time. It has the possibility of dramatically changing business models, government regulation, economic growth and prosperity and international relations. All forms of business are being pushed to incorporate climate change into projections and risk analyses. Government responses through mitigation or adaptation are uncertain and this too must be incorporated into business models and financial planning.

The Volatility and Risk Institute has commenced a wide ranging research program into the financial risks of climate change. This research has investigated the effects of sea level rise on real estate prices, discount rates for long horizon investments, and portfolio strategies for sustainable investing. The VRI includes climate investment performance and risk in its daily updates of VLAB. The VRI is actively engaging with students, faculty and practitioners in generating and sharing this research.

Our latest research on Climate Risk

• Acharya, V. V., Berner, R., Engle, R. F., Jung, H., Stroebel, J., Zeng, X., and Zhao, Y. (2023). Climate Stress Testing, Annual Review of Financial Economics.
• Acharya, V. V., Johnson, T., Sundaresan, S., & Tomunen, T. (2022). Is Physical Climate Risk Priced? Evidence from Regional Variation in Exposure to Heat Stress, Working Paper w30445, National Bureau of Economic Research
• Acharya, V. V., Johnson, T., Sundaresan, S., & Tomunen, T. (2023). Disasters with Unobservable Duration and Frequency: Intensified Responses and Diminished Preparedness, Working Paper w31067, National Bureau of Economic Research
• Alekseev, G., Giglio, S., Maingi, Q., Selgrad, J., & Stroebel, J. (2022). A Quantity-based Approach to Constructing Climate Risk Hedge Portfolios, (No. w30703) National Bureau of Economic Research.
• De Nard, G., Engle, R. F., & Kelly, B. T. (2023). Factor-Mimicking Portfolios for Climate Risk, Working Paper No 429, Department of Economics, University of Zurich.
• Engle, R. F., Giglio, S., Kelly, B., Lee, H., Stroebel, S. (2020). Hedging Climate Change News, The Review of Financial Studies, Volume 33, Issue 3, March 2020, Pages 1184–1216,
• Engle, Robert, Stefano Giglio, Heebum Lee, Bryan Kelly and Johannes Stroebel, “Hedging Climate Change News,” Review of Financial Studies, Volume 33, Issue 3, March 2020, Pages 1184–1216.
• Jung, H., Engle, R. F., & Berner, R. (2021). CRISK: Measuring the Climate Risk Exposure of the Financial System, FRB of New York Staff Report (977).
• Revesz, Richard L. and Jack Lienke, Struggling for Air: Power Plants and the 'War on Coal' (Oxford University Press, 2016).
• Revesz, Richard L., and Kimberly M. Castle, "Environmental Standards, Thresholds, and the Next Battleground of Climate Change Regulations," 103 Minnesota Law Review 1349 (2019).
• Revesz, Richard L., Jason A. Schwartz, Peter H. Howard, Kenneth Arrow, and Michael A. Livermore, Michael Oppenheimer and Thomas Sterner "The Social Cost of Carbon: A Global Imperative," 11 Review of Environmental Economics and Policy 172 (2017).
• Stroebel, Johannes, with Robert F Engle, Stefano Giglio, Bryan Kelly, Heebum Lee. “Hedging Climate Change News,” The Review of Financial Studies, Volume 33, Issue 3, March 2020, Pages 1184–1216,
• Stroebel, J., & Wurgler, J. (2021). What Do You Think about Climate Finance? Journal of Financial Economics, 142(2), 487-498.
• Stroebel, Johannes, Stefano Giglio, and Matteo Maggiori, “Very Long-Run Discount Rates,” Quarterly Journal of Economics, 130(1), February 2015.
• Wagner, Gernot, Robert Litterman, and Kent Daniel. "Declining CO2 price paths," Proceedings of the National Academy of Sciences, 2019.
• Wagner, Gernot, and Jesse L. Reynolds, “Highly decentralized solar geoengineering.” Environmental Politics, 2019.
• Whelan, Tensie, and Van Holt, Tracy, Matt Statler, Ulrich Atz, Mara van Loggerenberg, and James Cebulla. "The cultural consensus of sustainability‐driven innovation: Strategies for success." Business Strategy and the Environment (2020).
• Whelan, Tensie, and Zeidan, Rodrigo, Tracy Van Holt. "Existence inductive theory building and coordination failures for less unsustainable beef production." Journal of Cleaner Production (2020): 122137.
• Whelan, Tensie, Ulrich Atz, Tracy Van Holt, and Elyse Douglas. “The Return on Sustainability Investment (ROSI): Monetizing Financial Benefits of Sustainability Actions in Companies” Review of Business: Interdisciplinary Journal on Risk and Society, 39, no. 2, 1–31 (2019).

Mandating Disclosure of Climate-Related Financial Risk

Our colleagues at The Institute for Policy Integrity, directed by VRI advisory board member Richard L. Revesz, have released a new report, Mandating Disclosure of Climate-Related Financial Risk.