Q. What is the core of your research?A. I am the co-director of the Wharton Climate Center.
My research studies the effectiveness of energy and environmental policies. I look at how these can be efficient at reducing pollution but can at times have unintended consequences, like being very expensive for tax payers. I also study carbon trading markets and policies which improve the fuel efficiency and local air pollution emissions of vehicles.
Recently, I’ve begun to study land protection policies as well.Q. Which are the three kinds of emissions investors are focusing on now?A. One categorisation is Scope One, Two and Three emissions.
Scope One are from sources owned and controlled directly by a firm — that could be like a refinery which uses natural gas for an industrial furnace. Scope Two emissions are associated with the electricity, heating and cooling a business purchases — these are part of the life cycle emissions of a firm’s products. Scope Three emissions result from activities which are upstream or downstream in the value chain.
A company doesn’t directly control these and they can be very hard to quantify — consider a car manufacturer importing leather for its seats from Brazil. They could indirectly be causing tropical deforestation — that’s part of Scope Three emissions. Investors care significantly about all three categories now.
Scope Two and Three are indirect emissions but they could be regulated down the road — that would increase the cost of the energy or inputs a business buys, affecting its cash flows and profits.Q. With climate risks, how are investors allocating capital or managing their oversight of businesses?A. Broadly speaking, investors are doing three things — first, they engage with the
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