Greg Characklis spoke on efforts and research from the Center on Financial Risk in Environmental Systems, which works at the intersection of natural, engineered, and financial systems. He noted that financial risk arises when there are highly variable costs and revenue, which can make it very challenging for investors to plan for and lend money on, when they are not sure they will be paid back. As an example, Characklis discussed the 65-year history of annual hydropower revenues, which swing back and forth, and noted that this swing can make it difficult to make investment decisions. At the Center on Financial Risks in Environmental Systems, however, they try to understand underlying factors contributing to variability to manage the risks. In the case of hydropower, it’s highly linked to reservoir inflows and, to a lesser extent, power generation, because electricity prices fluctuate. Managing these risks ensures that investors make more in the low-income years but a bit less in the high-income years to provide more balance. Managing risks can prevent defaults, bankruptcy, lower valuations, and higher financing costs. Unfortunately, according to Characklis, environmental risks are growing, as are the unmanaged portions of risk, which means we need to quantify and understand risks to create better management strategies.
While trying to manage financial risks, the team at the Center on Financial Risk in Environmental Systems is also able to improve environmental quality by inspiring increased conservation activities, decreased reliance on infrastructure, decreased environmentally damaging activities, and increased reliance on renewable energy, as these are directly linked to risk management strategies.
Click here to view the talk on YouTube.
Greg Characklis, W. R. Kenan Jr. Distinguished Professor; Director, Center On Financial Risk In Environmental Systems
Department: Department Of Environmental Sciences And Engineering | Faculty Profile
Featured on: October 27, 2022 (Event Page)
Session Title: Unearthing Environmental Impact (Event Recap)
Tools, Information, and Resources:
- UNC Center on Financial Risk in Environmental Systems (CoFiRES): The UNC Center on Financial Risk in Environmental Systems (CoFiRES) focuses on understanding the links between financial losses and droughts, hurricanes,and other extreme environmental events by developing integrated models of natural, engineered.
- Global Risks Report 2019: Global Risks, as ranked by participants in the World Economic Forum, who rated major natural disasters, extreme weather events, failure of climate change mitigation and adaptation, and water crises as global risks with the highest likelihood and most impact.
- Executive Order on Climate-Related Financial Risk: This executive order outlines a whole-of-government strategy to mitigating climate-related financial risk and articulates a policy to advance the disclosure of climate-related financial risk and act to mitigate that risk and its drivers while achieving a net-zero emissions economy by 2050.
- National Flood Insurance Program (NFIP) Data and Analytics: NFIP Data and Analytics includes visualizations, reports, and data elements to educate the public about the impact of major flood events and flood risk across the nation.
- NC Policy Collaboratory: Through the NC Policy Collaboratory, researchers can collaboratively perform research regardless of physical location, interacting with colleagues, accessing instrumentation, sharing data and computational resources, and accessing information in digital libraries.