Perspective

There is broad scientific consensus that to avert the most catastrophic consequences from climate change we would need to limit global increase in temperature to no more than 1.5-degrees Celsius (1.5DS) or well below 2-degrees Celsius (2DS). To achieve this scenario there are multiple future carbon pathways with most of them pointing to the need to reach net zero emissions across many geographies approximately in the middle of the 21st century.

This transition to net zero creates a host of risks and opportunities for organizations and their investors. Should this goal not be reached and inaction with respect to climate change prevail this will lead to increasing physical risks from natural disasters and changes in the natural environment. The course examines holistically all these climate-related risks and opportunities, under different scenarios, with an emphasis on measuring, valuing, and designing climate transition strategies, data analytics, investment processes, products, and contracts through the lens of climate change.

Course Description

This is a course where students apply newly learned skills on measuring climate-related risks and opportunities to design climate transition strategies, make investments, valuing climate-related risk and growth, and designing contracts that incorporate climate metrics. The course covers major risks and opportunities arising from climate change, specifically transition risks and opportunities and physical risk.

The course draws from academic and practitioner research, focuses on data analytics and practical applications, and is mostly non-case based. The course looks at various applications of climate-related risks and opportunities and is not focused narrowly on clean tech or energy.

Drawing from readings in the academic and practitioner literature, HBS cases, and working actively with live cases and data, students will learn to:

1. Analyze regulatory schemes, such as cap-and-trade systems and carbon border adjustment mechanisms, and their consequences on climate outcomes, firm valuation, and competitiveness.

More than 20% of global greenhouse gas emissions are now covered by regulatory pricing schemes.

2. Use climate scenarios to determine a science-based target estimating what should be the carbon emissions of a company aligned with a 1.5 or 2-degrees scenario.

More than 1,000 companies have calculated their science-based target in the last five years.

3. Use carbon footprint methodologies to construct portfolios and indices with lower exposure to transition risk using a variety of climate data.

Dozens of low carbon products with hundreds of billions of dollars in assets under management have been launched in the last few years.

4. Design a turnaround strategy that identifies poorly managed and priced climate-related risks and opportunities and engage with a company as an active owner to change its strategy.

Dozens of climate-driven shareholder engagements are leading to high-profile changes in the governance and management of companies every year.

5. Identify and price climate solutions in the transportation, infrastructure, real estate, agriculture, energy, and industrial sectors that are critical to achieve net zero, developing capabilities for better forecasting of emerging technologies.

Trillions are required in climate solutions investments in the next two decades.

6. Analyze and structure use of proceeds bonds and bond contracts that makes the coupon rate contingent on climate metrics (i.e., sustainability-linked bonds).

These green bonds and sustainability-linked instruments have raised more than a trillion in the last few years.

7. Structure financial products designed to protect natural ecosystems, such as coral reefs and forests.

These novel products not only provide significant, direct benefits to surrounding communities but also help mitigate climate risk through carbon sequestration.

8. Analyze carbon offsets and business models arising from nature-based solutions.

While carbon offsets will be critical to sequester carbon, there is significant controversy around their validity and credibility.

Career Focus

This course is aimed at all students who, at some point in their career, will need to measure and value risks and opportunities emerging from climate change and make investment decisions using climate change as a lens through which they assess the resilience, growth, and value of a business. This course will be particularly beneficial to students who are seeking a career in asset management (investment managers, hedge funds, private equity, and venture capital), investment banking, management consulting, corporate strategy, and technology focused on data and analytics.

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