Sustainable Finance for a Decarbonized Economy
Central bankers and regulators with responsibility for managing systemic financial and economic stability are increasingly becoming concerned about climate change. Recent comments by the Reserve Bank of Australia in May this year about the systemic risks posed by increased global mean temperature rise, reflect the sentiment of many regulators with responsibility over financial system stability in the UK, Europe and Asia. These regulators are concerned that both the physical damage resulting from climate change and the disruptive effect on exiting industries of the economic and technological transitions needed to respond to the phenomena, could create shocks to the domestic and global economy which will impact the economic and financial system in the short, medium and long term.
Unfortunately, the suite of existing modelling techniques used by financial system regulators (and other policymakers) are not sufficient to understanding these transition risks to the economy or how such risks will flow between different economic actors. In the absence of a better understanding of these macro- and microeconomic transition risks, regulators and policymakers will not be able to as effectively prepare for a smooth transition to a carbon-constrained economy.
This seminar will feature two experts - Prof Thomas Heller and Matthew Huxham - from Stanford University's Sustainable Finance Initiative and Climate Policy Initiative who have developed and deployed a new modelling technique for climate transition risk. First deployed in South Africa in 2016-19, the model considers how changes in domestic and international markets may impact the economy and which actors (investors, corporates and sovereigns) will bear that risk under different scenarios. The speakers will outline the work they did in South Africa, its ongoing impact, and consider how such modelling may have application in the Australian context.
Thomas Heller is the Shelton Professor of International Legal Studies (emeritus) at Stanford University and the Director of Stanford’s Sustainability Finance Initiative at the Precourt Energy Institute. From 2009-16, he founded and served as Executive Director of a non-governmental analysis group, the Climate Policy Initiative (CPI). Since April 1, 2016 Heller has served as Board Chair and Senior Strategic Advisor to CPI.
CPI is recognized globally as a leading source of empirical analysis in its core programmatic areas of climate finance, energy transitions, and transformative agriculture. CPI assesses, evaluates and advises governments and private firms on the system dynamics and transition risks associated with technological, organizational, investment and institutional practices consistent with low carbon, high productivity economies. CPI work programs focus on locally situated, effective uses of fiscal, monetary, prudential and financial policies that regulate the energy, land use and mobility sectors driving climate change.
Heller’s recent views are briefly summarized in “Three Perspectives: Climate, Sustainability and Finance”, Precourt Institute, Stanford University.
Matthew Huxham is a Principal with CPI’s Energy Finance team. At CPI, Matthew is co-leading the team’s work on “transition risk” arising from the transformative impacts of action on climate change. Matt was the lead author of the report Understanding the impact of a low carbon transition on South Africa published on 26 March 2019. Since then, he has led CPI’s engagements with central banks, regulators and governments to expand the use of CPI’s analysis outside of South Africa. During his four years at CPI, Matthew has worked with foundation, public sector and private sector clients across a wide range of topics including: policy, regulation and investment structure designed to lower the cost of capital for renewable energy investment; the impact of decarbonisation strategies on the cement sector and the options for credit rating agencies to improve their ESG offering. A list of authored and co-authored publications is set out below.
Prior to joining CPI, Matthew was a lead analyst in the EMEA Utilities team at Moody’s, where he was responsible for credit ratings and research for a portfolio of UK and Irish power, gas and water utilities. In recent years, Matthew was also a senior advisor to the UK Government as it sought to design and implement a major restructuring of the British electricity market whilst attracting new investors in renewable and nuclear power plants. Matthew holds Master’s degrees in Modern History and Modern Languages from University College London and the University of Oxford, respectively. He is also a qualified Chartered Accountant.