Credible Scenarios
What are the best practices for environmental and climate risk management in the financial sector? Are the standard input scenarios actually suitable for financial modeling? Economic scenarios are an essential tool in assessing the financial risks of the ever-changing world. Given that the average global temperature is increasing, and storms are becoming more severe, year over year, those who construct financial models of risk must set up new, realistic scenarios. Estimating gains and losses on portfolios is difficult because of the deep uncertainty of climate impacts, but modelers must start somewhere. “Using relevant scenarios is crucial,” said Irene Monasterolo, Professor […]
Adapting Agricultural Trade
Climate change affects, and will continue to affect, agricultural productivity around the world. It is one of the inescapable ironies of our times that sub-Saharan Africa will be severely affected by climate change, despite how little it has contributed to global carbon emissions. How severe will these effects be? And is there any way to mitigate the effect on the most susceptible nations, besides curbing emissions, which appears to be a losing strategy? “Agriculture is a vulnerable sector because it is fed by rain and it is near the limits of thermal tolerance to begin with,” said Obie Porteous, Associate […]
Inflation Fighter
What’s being done to keep the American economy running smoothly? Who’s keeping watch over things like the employment rate and purchasing power? Does anyone care about the average citizen’s standard of living? In other words, who is the sheriff in town? “What is still bothersome is we haven’t achieved price stability,” said Mary C. Daly, the President and CEO of the Federal Reserve Bank of San Francisco (FRB-SF). She defined price stability as simply: “it’s when people don’t have to worry about inflation.” She identified this as the core mission of the FRB, which “as we all know, has come […]
A Storied Career
How is asset management evolving? What forces are re-shaping the financial industry? And what lessons were learned over the career path of one financial wizard? On June 23, 2025, the CFA Institute released the video of a far-reaching interview with Kenneth Blay, Head of Research, Global Thought Leadership at investment management company Invesco. “I started ‘in the dregs’ as a stockbroker,” Blay reminisced, “cold calling and pitching stocks before moving into research.” He noticed he was giving different recommendations for portfolios than his colleagues were, and he wondered why that wasn’t explored more systematically. Later, with Nobel laureate Harry Markowitz, Blay did […]
Plugging into Progress
Many countries signed on to the 2016 Paris Agreement, but nine years later, how many are actively working toward decarbonization? Watchdog organizations are evaluating the progress made year over year and will encourage the 195 or so signing parties to keep the commitments they made. One such organization is the independent scientific project Climate Action Tracker (CAT), whose main graphic summarizes the goals. On May 21, 2025, the Climate Action Tracker group presented a webinar, “Plugging Into Progress: Evaluating Power Sector Decarbonization,” in which four experts on climate risk discussed the progress, or lack thereof. Louise Jeffrey began the session. […]
The Growing Protection Gap
According to a CoreLogic survey, roughly 35 million homes, or nearly a third of the nation’s housing stock, are at “high risk” of a natural disaster. How much are U.S. households willing to pay for insurance? Will this give adequate coverage? And what do changes in demand imply for the future of insurance markets? “Climate losses are increasing, with homeowners insurance premiums rising in tandem,” said Pari Sastry, Assistant Professor of Finance at Columbia Business School, “and there is widespread concern that rising premiums are making insurance unaffordable.” Parinitha Sastry was speaking at a webinar on May 15, 2025, presenting […]
Nature Risk… Climate Risk
Nature risk, or the loss of natural assets, affects humans in a wide range of ways, but it is poorly understood, and its economic impact is not adequately measured. Yet it is gaining prominence during a time of concern about climate risk. The natural world helps mitigate climate change because it provides many natural sinks that absorb carbon dioxide, such as mangrove swamps. “Nature is critical for us to get to net zero,” said Jo Paisley, president of GARP Risk Institute, referring to a fundamental goal of the 2016 Paris Agreement. “And climate change is one of the drivers of […]
A Defining Moment
Investing in emerging markets amid today’s complex global landscape presents both opportunities and risks. Can investors identify markets with a strong potential for risk-adjusted returns? Can they avoid the worst of the pitfalls? In a webinar on March 19, 2025, three experts in the field presented a round-table discussion titled “Capital Flows, Tariffs & Trade: A Defining Moment for Emerging Markets Investors.” They touched on issues as wide-ranging as exchange rates, geopolitical risk, and trade barriers that will be discussed more fully at the upcoming conference, CFA Institute LIVE 2025 to be held in Chicago, 4-7 May, 2025. The panel […]
What is the Cost of Biodiversity?
Biologists have long known that biodiversity is the key to nature’s resilience. In a biodiverse world, if the environment changes and some organisms can no longer thrive, others can take their place and fulfil functions that are essential to the species’ survival, and ultimately, human survival. Even the lowliest animals play significant roles, such as insects that pollinate—and a third of the food we eat depends crucially on insect pollinators. In addition to its intrinsic value, biodiversity underpins ecosystem services, providing the backbone of the global economy. Biodiversity loss, or the reduction in the genetic diversity of life forms, can […]
The Case for CBAM
In 2003, a devastating heat wave in Europe killed an estimated 70,000 Europeans, many of them elderly people living alone. This, and a series of other extreme weather events, have persuaded many countries to take climate change seriously. The European Union enacted the carbon border adjustment mechanism (CBAM). It came into effect as of October 1, 2023, and is designed to account for the carbon cost of producing imported goods, with the ultimate aim of reducing greenhouse gas emissions. “I’m a huge fan of CBAM,” Catherine Wolfram, professor of economics at MIT Sloan, said, joking that the name sounded like something […]