Topics in climate change risk

In this Thesis, we analyze how climate risk impacts economic players and its consequences on the financial markets. Essentially, literature unravels two main channels through which climate change poses risks to the status quo, namely physical and transitional risk, that we cover in three works. Firstly, the call for a global shift to a net-zero economy implicitly devalues assets that contribute to global warming that regulators are forcing to dismiss. On the other hand, abnormal changes in the temperatures as well as weather-related events challenge the environmental equilibrium and could directly affect operations as well as profitability. We start the analysis with the physical component, by presenting a statistical measure that generally represents shocks to the distribution of temperature anomalies. We oppose this statistic to classical physical measures and assess that it is the driver of the electricity consumption, in the weather derivatives market, and in the cross-section of equity returns. We find two transmission channels, namely investor attention, and firm operations. We then analyze the transition risk component, by associating a regulatory horizon characterization to fixed income valuation. We disentangle a risk driver for corporate bond overperformance that is tight to change in credit riskiness. After controlling a statistical learning algorithm to forecast excess returns, we include carbon emission metrics without clear evidence. Finally, we analyze the effects of change in carbon emission on a regulated market such as the EU ETS by selecting utility sector corporate bond and, after controlling for the possible risk factor, we document how a firm’s carbon profile differently affects the term structure of credit riskiness.

Real effects of the IFRS 9 adoption in banking

The recent adoption of IFRS 9 is a highly disruptive accounting reform, with significant impacts on how and when negative news (i.e., negative adjustments to reported earnings) are recognized on the financial statements. Using a unique dataset of two major banks operating in one European country we provide evidence of a tightening of the corporate loans pricing after the IFRS 9 adoption. Furthermore, by focusing on the post reform period, we show that the tightening is driven by the new staging classification. Higher risk premiums are associated to clients with previous underperforming exposures (stage 2) and higher probability of default. We also observe that the staging classification is not affecting climate risk premiums. Our results highlight that the lenders, as expected by the regulation, change their risk appetite by charging higher spreads to discourage loan origination for clients that became too risky and expensive under the new standard.

The role of the West African Monsoon in the tropical to mid-latitudes climate

The interaction between atmosphere–land–ocean–biosphere systems plays a prominent role on the atmospheric dynamics and on the convective rainfall distribution over the West Africa monsoon area during the boreal summer. In particular, the initialization of convective systems in the Sub – Sahelian region has been directly linked to soil moisture heterogeneities identified as the major triggering, development and propagation of convective systems. The present study aims at investigating African monsoon large scale convective dynamics and rainfall diurnal cycle through an exploration of the hypothesis behind the mechanisms of a monsoon phenomenon as an emergence of a collective dynamics of many propagating convective systems. Such hypothesis is based on the existence of an internal self – regulation mechanism among the various components. To achieve these results a multiple analysis was performed based on remote sensed rainfall dataset, and global and regional modelling data for a period of 5 seasons: 2004 - 2008. Satellite rainfall data and convective occurrence variability were studied for assessing typical spatio – temporal signatures and characteristics with an emphasis to the diurnal cycle footprint. A global model and regional model simulation datasets, specifically developed for this analysis and based on Regional Atmospheric Modelling System – RAMS, have been analysed. Results from numerical model datasets highlight the evidence of a synchronization between the destabilization of the convective boundary layer and rainfall occurrence due to the solar radiation forcing through the latent heat release. This supports the conclusion that the studied interacting systems are associated with a process of mutual adjustment of rhythms. Furthermore, this rainfall internal coherence was studied in relation to the West African Heat Low pressure system, which has a prominent role in the large scale summer variability over the Mediterranean area since it is acting as one of dynamic link between sub tropical and midlatitudes variability.

Sviluppo di un approccio congiunto fuzzy-Bayesiano per l'analisi e la modellizzazione degli ecosistemi: applicazione ad ecosistemi marini costieri.

Nell’attuale contesto di aumento degli impatti antropici e di “Global Climate Change” emerge la necessità di comprenderne i possibili effetti di questi sugli ecosistemi inquadrati come fruitori di servizi e funzioni imprescindibili sui quali si basano intere tessiture economiche e sociali. Lo studio previsionale degli ecosistemi si scontra con l’elevata complessità di questi ultimi in luogo di una altrettanto elevata scarsità di osservazioni integrate. L’approccio modellistico appare il più adatto all’analisi delle dinamiche complesse degli ecosistemi ed alla contestualizzazione complessa di risultati sperimentali ed osservazioni empiriche. L’approccio riduzionista-deterministico solitamente utilizzato nell’implementazione di modelli non si è però sin qui dimostrato in grado di raggiungere i livelli di complessità più elevati all’interno della struttura eco sistemica. La componente che meglio descrive la complessità ecosistemica è quella biotica in virtù dell’elevata dipendenza dalle altre componenti e dalle loro interazioni. In questo lavoro di tesi viene proposto un approccio modellistico stocastico basato sull’utilizzo di un compilatore naive Bayes operante in ambiente fuzzy. L’utilizzo congiunto di logica fuzzy e approccio naive Bayes è utile al processa mento del livello di complessità e conseguentemente incertezza insito negli ecosistemi. I modelli generativi ottenuti, chiamati Fuzzy Bayesian Ecological Model(FBEM) appaiono in grado di modellizare gli stati eco sistemici in funzione dell’ elevato numero di interazioni che entrano in gioco nella determinazione degli stati degli ecosistemi. Modelli FBEM sono stati utilizzati per comprendere il rischio ambientale per habitat intertidale di spiagge sabbiose in caso di eventi di flooding costiero previsti nell’arco di tempo 2010-2100. L’applicazione è stata effettuata all’interno del progetto EU “Theseus” per il quale i modelli FBEM sono stati utilizzati anche per una simulazione a lungo termine e per il calcolo dei tipping point specifici dell’habitat secondo eventi di flooding di diversa intensità.

A Web GIS Decision Support System For Coastal Risk Assessment and Mitigation Planning

Coastal flooding poses serious threats to coastal areas around the world, billions of dollars in damage to property and infrastructure, and threatens the lives of millions of people. Therefore, disaster management and risk assessment aims at detecting vulnerability and capacities in order to reduce coastal flood disaster risk. In particular, non-specialized researchers, emergency management personnel, and land use planners require an accurate, inexpensive method to determine and map risk associated with storm surge events and long-term sea level rise associated with climate change. This study contributes to the spatially evaluation and mapping of social-economic-environmental vulnerability and risk at sub-national scale through the development of appropriate tools and methods successfully embedded in a Web-GIS Decision Support System. A new set of raster-based models were studied and developed in order to be easily implemented in the Web-GIS framework with the purpose to quickly assess and map flood hazards characteristics, damage and vulnerability in a Multi-criteria approach. The Web-GIS DSS is developed recurring to open source software and programming language and its main peculiarity is to be available and usable by coastal managers and land use planners without requiring high scientific background in hydraulic engineering. The effectiveness of the system in the coastal risk assessment is evaluated trough its application to a real case study.

Analysis of technological accidents triggered by natural events (Natech) in the perspective of climate change

The severe accidents deriving from the impact of natural events on industrial installations have become a matter of growing concern in the last decades. In the literature, these events are typically referred to as Natech accidents. Several peculiarities distinguish them from conventional industrial accidents caused by internal factors, such as the possible occurrence of multiple simultaneous failures, and the enhanced probability of cascading events. The research project provides a comprehensive overview of Natech accidents that occurred in the Chemical and Process Industry, allowing for the identification of relevant aspects of Natech events. Quantified event trees and probability of ignition are derived from the collected dataset, providing a step forward in the quantitative risk assessment of Natech accidents. The investigation of past Natech accidents also demonstrated that wildfires may cause technological accidents. Climate change and global warming are promoting the conditions for wildfire development and rapid spread. Hence, ensuring the safety of industrial facilities exposed to wildfires is paramount. This was achieved defining safety distances between wildland vegetation and industrial equipment items. In addition, an innovative methodology for the vulnerability assessment of Natech and Domino scenarios triggered by wildfires was developed. The approach accounted for the dynamic behaviour of wildfire events and related technological scenarios. Besides, the performance of the emergency response and the related intervention time in the case of cascading events caused by natural events were evaluated. Overall, the tools presented in this thesis represent a step forward in the Quantitative Risk Assessment of Natech accidents. The methodologies developed also provide a solid basis for the definition of effective strategies for risk mitigation and reduction. These aspects are crucial to improve the resilience of industrial plants to natural hazards, especially considering the effects that climate change may have on the severity of such events.

Joint value at risk: a new conditional risk measure

In this PhD thesis a new firm level conditional risk measure is developed. It is named Joint Value at Risk (JVaR) and is defined as a quantile of a conditional distribution of interest, where the conditioning event is a latent upper tail event. It addresses the problem of how risk changes under extreme volatility scenarios. The properties of JVaR are studied based on a stochastic volatility representation of the underlying process. We prove that JVaR is leverage consistent, i.e. it is an increasing function of the dependence parameter in the stochastic representation. A feasible class of nonparametric M-estimators is introduced by exploiting the elicitability of quantiles and the stochastic ordering theory. Consistency and asymptotic normality of the two stage M-estimator are derived, and a simulation study is reported to illustrate its finite-sample properties. Parametric estimation methods are also discussed. The relation with the VaR is exploited to introduce a volatility contribution measure, and a tail risk measure is also proposed. The analysis of the dynamic JVaR is presented based on asymmetric stochastic volatility models. Empirical results with S&P500 data show that accounting for extreme volatility levels is relevant to better characterize the evolution of risk. The work is complemented by a review of the literature, where we provide an overview on quantile risk measures, elicitable functionals and several stochastic orderings.

Framing climate change: a planetary health perspective on the pediatric age

This thesis analyzes an analysis of the risk perception of Italian paediatricians and parents regarding the impact of climate change on pediatric health. The consequences of climate change are now before our eyes; the recent pandemic has highlighted the impact that the destruction of ecosystems and global warming can have on our health. Fragile subjects will pay the most for the consequences of this crisis: children, the elderly, pregnant women. According to the World Health Organization (WHO), 88% of the disease burden linked to climate change falls on children under the age of 5. Climate change poses a challenge of equity not only between different areas of the world but also between generations: the worst consequences will weigh on those who have not caused damage to the ecosystem. This study began by studying the risk perceptions of the two main caregivers who deal with the child's health: parents and paediatricians. The study analyzed a mixed methods approach, exploiting quantitative and qualitative approaches. Two surveys were carried out in collaboration with the Italian Society of Pediatrics (SIP) and AGE, the Italian Parents' Association, using a tool already consolidated in the literature and adapted according to the needs of the thesis. Sixty semi-structured interviews were then conducted with pediatricians of different age groups and different regions of Italy. The collected data were then compared with the literature on the subject, in order to understand differences and similarities. This work is part of a still rather scarce, but growing, field of literature and represents the first study of this type in Italy.

Dynamic food systems and climate-induced risks transmission for food and nutritional security

Agriculture market instability impedes achieving the global goal of sustainable and resilient food systems. Currently, the support to producers reaches the mammoth USD 540 billion a year and is projected to reach USD 1.8 trillion by 2030. This gigantic increase requires a repurposing agricultural support strategy (RASS), considering the market country-specific circumstances. These circumstances may vary with geographic locations, marketing structures, and product value chains. The fruit production system is crucial for health-conscious consumers and profit-oriented producers for food and nutritional security. Export is one of the main driving forces behind the expansion of the fruit sector, and during the year 2010-2018, trade significantly outpaced production increases. The previous literature states that irregular and unpredictable behaviour — Chaos — can arise from entirely rational economic decision-making within markets. Different markets' direct/indirect linkages through trade create trade hubs, and uncertainty may function as an avenue to transmit adverse shocks and increase vulnerability rather than contribute to resilience. Therefore, distinguishing Chaos into an endogenous and exogenous pattern of behaviour is cradled to formulate an effective RASS for resilient food systems and to understand global food crises. The present research is aimed at studying the market dynamics of three regional trade hubs, i.e., Brazil (South America), Italy (Europe), and Pakistan (Asia), each representing advanced to traditional value chains to control uncertainty (risks). The present research encompasses 1) a systematic review to highlight the research dynamism and identify grey-areas of research. Based on the findings, we have investigated the 2) nonlinear impacts of climate-induced price responsiveness in monopsony markets. Once we highlighted the importance of marketing structures/arrangements, 3) we developed a risk transmission framework to address the co-evolving impacts in complex dynamic interactions.

Towards Europe 2050: the role of institutions, EU research, and citizens for climate justice. The urban challenge in Amsterdam, Bilbao, Freiburg, and Lisbon.

The climate crisis is the greatest challenge humanity has ever faced, and in 2023 the average global temperature reached new records, prompting the UN Secretary General to declare that 'the era of global warming is over, and the era of global boiling has arrived'. In this context, urban areas play a key role, and can be considered a bottleneck of the climate crisis. The European Commission is investing billions of euros in research and innovation projects in urban areas, while the European Green Deal strategy has the ambition of making Europe the first carbon-neutral continent on the planet by 2050. However, studies and research show that the causes of the climate crisis are rooted in an economic system that produces profound inequalities, and the very solutions to address the consequences of global warming risk deepening them. In this context, the role of cities is not only to decarbonise their urban fabric, but to build solutions to the social challenge posed by the climate crisis, promoting paradigm shifts capable of producing trajectories towards so-called 'climate justice'. This research analyses, through a holistic view, European policies in these fields, and delves into the actions and projects of four European cities - Amsterdam, Bilbao, Freiburg, and Lisbon - through a qualitative approach aimed at identifying strengths and contradictions of strategies to tackle the climate crisis. Delving into the collective dynamics and social impacts of the actions promoted, the research proposes a comprehensive view of the role that urban areas can play not only in decarbonising society, but in promoting a paradigm shift capable of addressing the economic causes and social consequences of the climate crisis.