The winner of the GRASFI 2020 Prize for Best Research Paper in Climate Finance, sponsored by Imperial College London CCFI, was written by Vincent Bouchet, Caisse des Depots and Theo Le Guenedal, Amundi Asset Management. 

Judges found the paper introduces novel and practical applicable implications in the analysis of how carbon pricing increases affect various industries, in various scenarios, and over different time horizons, then translates into EBITDA hit and metrics on credit risk. The paper was deemed to be very relevant, thorough, and well written and reflects the experience of the authors as both industry practitioners and PhD candidates. 

View the prize giving and the paper presentation at the links here and below. 


In order to meet the objectives set by the Paris Climate Agreement, global greenhouse gas emissions must be drastically reduced. One way to achieve this goal is to set an effective carbon price. Although beneficial for the climate, a rapid increase in this price can have a significant financial impact on corporate firms. Based on the 2018 Intergovernmental Panel on Climate Change (IPCC) scenarios, we study the credit risk sensitivity of 795 international companies. We develop a bottom-up approach and analyze how probabilities of default within each sector might evolve in both the medium (2023) and long term (2060). We find that energy, materials and utilities sectors would be the most affected. Moreover, the risk materializes earlier and is more heterogeneous for utilities. From a policy perspective, the prices associated with a scenario limiting global warming to 2 have a limited impact on global credit risk. Such a scenario therefore seems achievable without generating substantial financial losses. From these results, we propose a new indicator, the carbon price threshold, that takes the economic and capital structure of the firm into account in measuring carbon risk.