Kasper meisner Nielsen, Copenhagen Business School
Abstract: Are investors’ preferences for responsible investing affected by their idiosyncratic
personal experiences? Using a comprehensive dataset for hospital visits and the information
on portfolio holdings by retail investors in Denmark, we show that when
an investor’s child is diagnosed with a respiratory disease, the investor decreases (increases)
portfolio weights of “brown” (“green”) stocks but does not alter their holdings
of ESG funds. Consistent with parents attributing respiratory diseases to air pollution,
we find no effects for non-respiratory diseases. The results are stronger for more severe
diseases and are entirely driven by parents who live with their children.
Abstract: The operation of residential buildings (our homes) is responsible for roughly 22% of the global energy consumption and 17% of the CO2 emissions. We study the effects of a regulatory intervention aiming to reduce carbon emissions by requiring privately rented properties to satisfy minimum energy efficiency standards. The regulation triggered significant investments in the rental sector. However, the environmental gains were smaller, limited by the use of more polluting energy sources. Regulatory interventions that target carbon emissions directly may be more effective in tackling the climate challenge.
Discussant: Qifei Zhu, National University of Singapore
Abstract: In the face of rising climate risk, financial institutions may adapt by transferring such risk to securitizers that have the skill and expertise to build diversified pools, such as Mortgage-Backed Securities. In diversified pools, exposure to climate risk may be a drop in the ocean of cash flows. This paper builds a data set of the entire securitization chain from mortgage-level to MBS deal-level cash flows, and observes the prices of the tranches at monthly frequency. Wildfires lead to higher rates of prepayment and foreclosure at the mortgage level, and larger losses during foreclosure sales. At the MBS deal level, a lower spatial concentration of dollar balances (lower spatial dollar Herfindahl), a lower spatial correlation in wildfire events (within-deal correlation), leads to a lower exposure to wildfire events. These quantifiable metrics of diversification identify those existing deals whose design makes them resilient to climate change. This paper builds optimal deals by finding the portfolio weights in an asset demand system that targets return and risk. Extrapolating wildfire risk using a granular wildfire probability model and temperature projections in 2050, we build climate resilient MBSs whose returns are minimally impacted by wildfire risk even as they supply mortgage credit to wildfire prone areas. Finally, we test whether the market prices the sensitivity of each deal's cash flow to wildfire risk.
Discussant: Shashwat Alok, Indian School of Business
