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The effect of climate risks on the interactions between financial markets and energy companies

Abstract

In recent years, the investment community has become increasingly aware of the investment risks from both the physical effects of climate change and the regulatory responses to facilitate the transition to a net-zero economy. The potential impact of climate transition risks is especially large for fossil energy companies, given their central role in producing carbon emissions. Here we discuss how concerns about climate risks influence the way investors allocate their capital and exercise their oversight of firms, and how this investor response affects companies in the energy sector. We then explore how different energy firms have responded to climate-related pressures from their investors and other stakeholders. We conclude by highlighting promising areas of research for understanding how climate risks affect the interaction between financial markets and the energy sector.

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Fig. 1: Climate risk implications for energy companies and investors.

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Correspondence to Stefano Giglio.

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Competing interests

A.A.v.B. holds mutual funds that invest in publicly traded clean energy companies and related industries. E.S. is currently a Sustainability Risk Manager within BlackRock’s Risk and Quantitative Analysis (RQA) group. E.C. is vice-chair, Americas, at Wood Mackenzie. S.G. has received compensation in excess of US$10,000 from D. E. Shaw over the past three years. J.S. is also a member of the Climate-Related Market Risk Subcommittee at the Commodities and Futures Trading Commission (CFTC), an unpaid position. He also holds mutual funds that invest in publicly traded energy companies and related industries.

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van Benthem, A.A., Crooks, E., Giglio, S. et al. The effect of climate risks on the interactions between financial markets and energy companies. Nat Energy 7, 690–697 (2022). https://doi.org/10.1038/s41560-022-01070-1

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