Research Handbook of Finance and Sustainability
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Research Handbook of Finance and Sustainability

Edited by Sabri Boubaker, Douglas Cumming and Duc K. Nguyen

The severe consequences of the global financial crisis 2008-2009 and numerous accounting frauds and financial scandals over the last fifteen years have let to calls for more ethical and responsible actions in all economic activities including consumption, investing, governance and regulation. Despite the fact that ethics in business and corporate social responsibility rules have been adopted in various countries, more efforts have to be devoted to motivate and empower more actors to integrate ethical behavior and rules in making business and managerial decisions. The Research Handbook of Finance and Sustainability will provide the readers but particularly investors, managers, and policymakers with comprehensive coverage of the issues at the crossroads of finance, ethics and sustainable development as well as proposed solutions, while focusing on three different levels: corporations, investment funds, and financial markets.
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Chapter 23: Climate risks and the practice of corporate valuation

Roberto Bianchini and Gianfranco Gianfrate

Abstract

Global investors and asset owners are no longer treating climate change as a peripheral issue. From the perspective of seeking superior investment returns and of reducing risks, investors are exploring new ways to capitalize on the opportunities emerging from the transition to a low-carbon economy. The practice of finance, and in particular of corporate valuation, is acknowledging this new context by looking into approaches that could accurately reflect the impact of climate risks on equity value. The development of carbon-related financial products and the growing availability – across industries and jurisdictions – of environmental footprint data are useful ‘ingredients’ to integrate climate risks in corporate valuations. We assess how and to what extent carbon risks can be factored into the most common valuation techniques (i.e., discounted cash flow models) as well as in more sophisticate approaches such as scenario-based valuations, Monte Carlo simulations, decisional trees, and real options.

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