The Second Objective Function

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Quantifying the Financial Impacts of Climate Change

September 22, 2022

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The growing threats of extreme weather and climate tipping points create risks to financial markets in the next five to ten years that current climate scenarios do not capture.

We introduce a class of stochastic sector-specific damage functions to capture the probabilities of significant events, notably extreme weather and climate tipping points. Using these models will show material climate-related risks for insurance and pension fund asset allocations in the next five to ten years.

The stochastic character of the damage functions enables the calculations of climate stresses at various percentile levels rather than just a single deterministic path as is currently the case in most regulatory stress tests.


  • Bob Brammer, President and CEO, Brammer Technology, Adjunct Professor in the Department of Atmospheric and Oceanic Science
  • Matthew Lightwood, Director, Risk Solutions, Conning
  • Cliff Rossi, Professor of the Practice, Robert H. Smith School of Business

Moderated by Russ Wermers, Director Center for Financial Policy, Paul J. Cinquegrana ’63 Endowed Chair in Finance

Concluded Events

A Scientist's Take on Climate Models and Risk Management Applications
With Dr. Tim Canty

November 17, 2021


Permanent Instability: Climate Risk to the Financial System

May 25, 2021

Watch Video: Permanent Instability

What It Means To Be Green

May 17, 2021

Watch Video: What It Means To Be Green

Investors, policymakers and consumers are all grappling with the same issues when it comes to ESG, sustainability and what it means to be “green.”

Nowhere is this more evident than in the apparel industry, as recent events are proving it to be a test case for the burgeoning ESG industry as human rights violations in the Xinjiang region related to cotton farming fuel diplomatic tensions around the world. While the pandemic exposed other bad behaviors, from environmental to labor abuses, something most ESG ratings systems failed to appropriately capture.

The speakers will discuss what it means to be green and why transparency is essential if we ever hope to get there.


  • Hilary Jochmans, Jochmans Consulting and Founder of Politically In Fashion, will discuss her advocacy work calling for updating the FTC Green Guides
  • Kirti Poonia, Head of Okhai, a sustainable fashion brand subsidiary of Tata Global
  • Russ Wermers, Director of the CFP and expert in asset management will discuss the need for transparency for proper ESG scoring


  • Kristen Fanarakis, Sr. consultant with the CFP and founder of the American made luxury fashion brand Senza Tempo
  • Nima Farshchi, Director, Center for Social Value Creation

Climate Change Series

Feb. 12, 2021

Cracking the Code on Climate Change Economic Scenarios:
Issues in Translating Physical to Financial Risks

WATCH VIDEO: Cracking the Code on Climate Change Economic Scenarios

October 6, 2020

Do Investors Care About Carbon Risk?

We find that stocks of firms with higher total CO2 emissions (and changes in emissions) earn higher returns, after controlling for size, book-to-market, momentum, and other factors that predict returns. We cannot explain this carbon premium through differences in unexpected profitability or other known risk factors. Overall, our results are consistent with an interpretation that investors are already demanding compensation for their exposure to carbon emission risk. Join Patrick Bolton and Marcin Kacperczyk as they discuss carbon risk and if investors care.


  • Patrick Bolton, Barbara and David Zalaznick Professor of Business Finance and Economics at Columbia University and Visiting Professor of Finance at Imperial College of London
  • Marcin Kacperczyk, Professor of Finance, Imperial College of London

Read the research: Do Investors Care About Carbon Risk?.

WATCH VIDEO: Do Investors Care About Carbon Risk?

October 13, 2020

Hedging Climate Change News

Join Stefano Giglio as he proposes and implements a procedure to dynamically hedge climate change risk. The resulting hedge portfolios outperform alternative hedging strategies based primarily on industry tilts. Stefano will conclude his discussion and explore directions for future research on financial approaches to managing climate risk.


Stefano Giglio, Yale School of Management

Read Professor Giglio's research co-authored by Nobel Laureate Robert Engle.

WATCH VIDEO: Hedging Climate Change News

October 20, 2020

Pricing Climate Change Risk in the Markets

Pricing greenhouse gas emissions involves making trade-offs between consumption today and unknown damages in the (distant) future. This setup calls for an optimal control model to determine the carbon dioxide (CO2) price. The Epstein-Zin Climate model suggests a high optimal carbon price today that is expected to decline over time as uncertainty about the damages is resolved. It also points to the importance of backstop technologies and to very large deadweight costs of delay. Join Robert Litterman as he discusses pricing climate change risk in markets.


Bob Litterman, Chairman of the Risk Committee, Kepos Capital

Read the research: Pricing Climate Change Risk in the Markets.

WATCH VIDEO: Pricing Climate Change Risk in the Markets

October 27, 2020

Global supply chain exposure and vulnerability to increasing climate extremes

Global supply chains are a central organizing mechanism of the economy. Their effective management involves making trade-offs between network efficiency and resilience, as well as broader environmental, social, and governance impacts. This paper focuses on understanding global supply chains' exposure and vulnerability to increasing climate extremes by analyzing revenue-at-risk and response capacity to increasing climate extremes at 10,250 sites across the United States and China. We find that 49% of sites are exposed to increasing climate extremes, and that of sites with the highest revenue-at-risk, 38% are minimally prepared and only 12% are adequately prepared for a disruptive climate event.


  • Sandor Boyson, Research Professor at the Robert H. Smith School of Business, University of Maryland, College Park
  • Michael Gerst, research faculty at the Earth System Science Interdisciplinary Center at the University of Maryland
  • Russ Wermers, Director, Center for Financial Policy and Finance Chair, Robert H. Smith School of Business

WATCH VIDEO: Global supply chain exposure and vulnerability to increasing climate extremes

November 2, 2020

Carbon Transition Risk

Climate change is primarily a risk-management issue for investors. The interaction of uncertainty around climate impacts and our utility in extreme states argues for rapid coordinated global action. The transition away from carbon-intensive economic activities will take decades, but market expectations could change quickly. Positioning portfolios ahead of this transition is a timely strategy with potential for both risk and return payoffs.


WATCH VIDEO: Carbon Transition Risk

November 18, 2020

Climate Change as a Systemic Risk

The climate crisis poses a systemic threat to financial markets and the real economy, with significant disruptive consequences on asset valuations and economic stability. Join us as we discuss the implications for markets, regulators, across industries and indeed for fiduciaries and asset managers.

Presentation by Veena Ramani, Senior Program Director, Capital Market Systems, Ceres

Followed by a panel discussion with:

  • Veena Ramani, Senior Program Director, Capital Market Systems, Ceres
  • Russ Wermers, Director, Center for Financial Policy
  • Julie Hudson, Global Head of ESG Research, UBS
  • Bhanu Baweja, Chief Strategist, UBS

Read the Ceres report on climate change as a systemic risk.

WATCH VIDEO: Climate Change as a Systemic Risk

Topics in Diversity

December 10, 2020

Diversity & the Bottomline

How much is the lack of diversity in corporate America costing investors and shareholders?

Countless academic studies show that diverse teams management teams outperform their homogenous counterparts. Yet, minorities and women only make up a fraction of senior leadership in the Fortune 500 and the investment management community.

Are investors and corporate boards failing in their fiduciary duties by allowing management to continue to operate in a sub-optimal capacity? Join Gilbert Garcia, Robert Raben, and Juan Martinez for a discussion moderated by Professor Russ Wermers on how the lack of diversity costs investors and shareholders from achieving optimal returns.


  • Gilbert Garcia, Managing Partner, Gilbert Hamilton Associates
  • Juan Martinez, VP/CFO & Treasurer, John S. & James L. Knight Foundation
  • Robert Raben, Founder, The Raben Group

Moderated by Russ Wermers, Director, Center for Financial Policy

WATCH VIDEO: Diversity & the Bottomline

Co-sponsored by the Center for Social Value Creation at Maryland Smith.

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