An economics professor reflects on the challenges and opportunities of climate change

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Do extreme weather events cause farmers to lose access to credit? Do they encourage global companies to move their business sites to avoid physical and economic disasters? Will a sudden shift in investment trends away from carbon industries cause a major financial crisis? These questions guide the research that Professor Galina Hale, Ph.D., is exploring with her doctorate. students. They also lead contemplative discussions in his undergraduate and graduate classes in the Department of Economics, which was ranked sixth in the world among university departments in international finance.

“The worlds of economics and climate change science collide,” says Hale, who spent 14 years as an economist at the Federal Reserve Bank of San Francisco and has held teaching positions at Yale, Stanford and UC Berkeley. She started her career in Russia as a consultant for the Russian Ministry of Finance. She joined the faculty at UC Santa Cruz in 2020.

Her interest in work that intersects climate change and economics was inspired a few years ago by her attendance at the second Network for Green Financial Systems (NGFS) conference, where she was the only Federal Reserve representative.

“I was impressed with how people were able to think about climate-related risks in the context of monetary and financial policy and banking supervision,” said Hale, whose published research so far- there were focused on understanding patterns of international and international capital flows. financial crises, international banking and stability of financial networks. After the NGFS conference, she was trying to find a way to connect her research with her passion for environmental protection.

“I love being outdoors and I’m passionate about the environment. My husband and I are looking for ways to help reduce the use of animals for human food consumption, a major contributor to climate change,” said Hale, who is also a board member of Animal Charity Evaluators and co-founder. from Food System Innovations. , a group of experts who volunteer to help organizations working to make the global food system more environmentally friendly, more compassionate and more healthy.

Drawing on these interests and her desire to help solve global problems, Hale focused on identifying opportunities for the financial system to mitigate climate risks and determining ways in which economists can inform decision-makers on how to make the food system more sustainable.

Through her research, in which she invites undergraduate and graduate students to participate, she investigates whether financial markets are prepared for climate risks. It seeks to know if the economic agents – the financial markets in particular – realize the risks and if they grant a sufficient probability that these events occur.

Mitigating climate risk is an existential necessity. But, says Hale, if some changes are unexpected, they can pose a significant risk to global markets. The UK’s commitment to cut coal and the US’s commitment to phase out high-emission cars are two examples of such transition risks that could have quick and damaging economic consequences. It explores sustainable investing (ESG or environmental, social and governance), how markets respond or prepare for companies moving towards greener production methods and manufacturing environmentally friendly products.

“There is a serious risk that asset prices will change rapidly once it becomes clear to people that they can’t have coal or that cars that don’t run on electricity are of little value,” says Tan. “If financial markets are not prepared for this rapid drop in the value of certain assets, it could have a catastrophic ripple effect on local and global markets.”

Hale also shed light on the multi-billion dollar impact that climate change is having on all areas of the economy. As she explains in a recent study, “What are the financial risks associated with climate change? » (Econofact, 21 January 2020), “Agriculture, infrastructure, human health and productivity, tourism, businesses and financial markets are already being impacted by increasingly frequent extreme weather events.” PG&E’s recent bankruptcy filing following devastating wildfires in California is one example it uses to make its point.

Hale incorporates his research into his courses, which have stimulated several climate-related research theses from his students. She is the director of the Master’s program in Applied Economics and Finance, which is unique in that it offers more training in economics, statistics and econometrics than most traditional MBA programs.

“Silicon Valley companies rely on big data analytics, AI and machine learning, but they also need talent who can ask the right questions, trained to understand the fundamentals of economic systems and capable of programming statistical models,” Hale said. MBA programs don’t get as technical as we do with econometrics and data science. »

Hale and his colleagues work on research dispersed by the university’s Center for Analytical Finance (CAFIN), which engages in cutting-edge analysis aimed at solving the real problems of finance in a globalized financial system. CAFIN’s motivation came from the financial crisis of 2008, and its main themes of understanding systemic risks, the impacts of technological innovation in finance and the challenges of promoting greater financial inclusion, all have their roots in this global shock. Hale co-directs the center with economics professor Nirvikar Singh.

“As founding director of the Center for Analytical Finance (CAFIN) at UC Santa Cruz, I was thrilled when, in 2020, Galina accepted the invitation to become co-director of the center,” Singh says. “Galina has played a leading intellectual and organizational role in bringing CAFIN’s attention to the importance of finance in the field of environment, sustainability and governance (ESG): for example, understanding the risks of climate change and the means to finance prevention and mitigation play a pivotal role in advancing against the looming threat.With Galina’s leadership, CAFIN will be at the frontier of the two most important aspects of global finance – Fintech and ESG – for decades to come. CAFIN.” More than seven years ago, UC Investments created a Sustainable Investing Framework for the University of California that has helped guide our thinking about the challenges and opportunities of our time and beyond. Our collaboration with CAFIN has helped us keep abreast of the latest research and innovations that relate not only to investing, but also to how we value our changing world,” says Jagdeep Bachher, Chief Investment Officer and Vice President of investments at UC Investments.

In March, CAFIN collaborates with universities and local financial institutions to present The Fintech: Innovation, Inclusion and Risks Conference 2022 which will take place at San Francisco State University (SFSU) and will bring together academics, financial economists, and policy and compliance experts. The conference is co-hosted by CAFIN, SFSU and Federal Reserve Bank of San Francisco.

“Universities need to be at the table to understand the overall needs of financial institutions and policymakers, so they can engage their faculty and students in work that will solve relevant unsolved problems,” said Hale, who has a vision of growth. the center and the master’s program in a way that connects students with alumni and other Silicon Valley companies.

“At UC Santa Cruz, we want academic ideas to surface and impact what’s happening in Silicon Valley,” she said. “We would like graduate students to attend international conferences and host presentations and events at local conferences. We would like to engage alumni and policy makers and focus on the needs of our community in finance, education , environmental, social and governance (ESG) sustainability, issues that are not typically the focus of academic financial centers There is so much potential for us to connect and engage, which would benefit students , faculty, alumni and community.”

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