Chinese Version

Environmental Stress Testing for the Asset Management Industry - Report

Time:2017-09-18 From: Author: International Institute of Green Finance and Green Finance Committee of the China Society for Finance and Banking

Articles 10 and 18 of the Guidelines for Establishing Green Financial Systems issued on August 31, 2016 by the seven ministries and commissions, including the People’s Bank of China (PBC), detail financial institutions’ implementation of environmental risk stress testing. However, the environmental risk stress testing does not cover the asset management industry, an important institutional investment group. This research is the first environmental stress testing for the asset management industry in China and proposes a novel concept and approach for environmental stress testing in the asset management industry. 

The environmental stress testing of the asset management industry is an approach to the analysis and management of environmental and climate factors through quantitative analysis. The research revealed that the environmental and climate risk factors will affect the return on assets, bringing a higher return on green stocks and lower return on brown stocks. Therefore, it concludes that the market price mechanism can genuinely internalize the environmental cost. The research hopes that the empirical findings of the environmental stress testing will promote the market price mechanism to stimulate green investments and guide the domestic asset management industry to watch consider the environmental risk factor when making investment decisions.