Uncovering Risk Premia in Sustainable Finance
Explore the insights shared by Dr. George Christodoulakis on the pricing of ESG vs conventional assets, the impact of ESG news on stock markets, and evidence on risk from ICAP.CRIF Ratings. Discover the potential interest rate discounts for bond investors and creditors based on E/S/G factors.
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Presentation Transcript
Searching for Risk Premia in Sustainable Finance Dr George Christodoulakis ICAP CRIF BoD, Head of Credit Rating Agency 22 September 2022 CCI France Gr ce Conference ESG and Sustainable Development
ICAP CRIF Ratings - overview Pricing of ESG vs Conventional Assets Creditors, Investors News vs Risk Economic Materiality Stock Markets Respond to ESG News - as ESG is seen as agency cost + as ESG is seen as risk vs return enhancement Evidence Positive (negative) price reaction to positive (negative) news Short-term, sector and E/S/G asymmetries, economically material news ICAP CRIF CRA prepares evidence on risk Do Bond Investors and Creditors offer an interest rate discount? E - Greenium, S - Socium, G Govium Mixed Evidence (adjusted for structural features) Zero discount for municipal bonds Modest discount for corporate bonds 2
ICAP CRIF Ratings - overview Short-Term Mismatch of Demand & Supply, Oversubscription Elimination by Arbitrage unsustainable Internalization of Externalities Elimination by multiple beneficiaries unsustainable Preferences for Returns + Intangible Benefits Psychological, brand, reputation etc Elimination by Arbitrage unsustainable Government and Regulatory Policies EBA guidelines sustainable, ineffective ESMA preparations sustainable, ineffective Inherently Reduced Risk Emergence on a risk-adjusted basis - sustainable 2
