Professor Nishad Kapadia of Tulane's Freeman School of Business discusses his course Climate Change, ESG & Financial Markets.

This course focuses on understanding how climate change risk could impact the economy and financial markets. Although the course focuses on the E (Environment), we also discuss the S (Social) and G (Governance) aspects of ESG. We discuss motivations to invest in ESG assets, including shareholder preferences, screening bad investments and constructing optimal portfolios for investors with climate risk exposures. We examine the macroeconomic effects of climate change and its impact on specific markets such as equity, bonds, loans and real estate.

The course also covers methods of quantifying and measuring climate exposures. Students will read recent research that examines whether investor ESG preferences affect a firm’s cost of capital and whether investors can do well while doing good. Students will also develop quantitative equity trading strategies related to climate risks and ESG. As part of a group project, students will develop and test a trading strategy designed to hedge climate risks or make greater returns by investing in climate or, more broadly, ESG-friendly assets. Finally, new “green” financial products, the emerging carbon offsets market, and regulatory efforts to limit climate change are discussed.

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