Conceptualizing and measuring the firm-level transition risk in the auto sector

Master thesis (2022)

Authors

B.X. Chia Technology, Policy and Management

Contributors

J.A. Annema Transport and Logistics - TPM (supervisor 1)
H.G. van der Voort Organisation & Governance - TPM (supervisor 2)
Faculty
Technology, Policy and Management
Copyright: © 2022 Francis Chia
Climate change Techno-economic analysis Bottom-up approach Climate risk Transition risk Auto sector Cash flow risk Institutional investing
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Published Date

25-01-2022

Language

English

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Faculty

Technology, Policy and Management

Abstract

Auto sector corporations are increasingly disclosing climate targets given the need to transition, which presents risks. However, institutional investors have yet to develop knowledge in climate science to assess the risk concretely. Instead, they rely on qualitative measurement such as the Environmental, Social, Governance factors for climate risk assessment. Therefore, the research seeks to reconcile the scientific gap present in the climate risk assessment framework in the auto sector. The research relies on a participatory modeling process with 11 expert practitioners, supplemented with a case study of an auto manufacturer for model testing. The research conceptualizes and designs a spreadsheet techno-economic model to measure the firm-level transition risk in the auto sector, defined as the capital requirement and regulatory risks, operationalized using cash flow. The model results show that the policy risk influences the degree to which the auto manufacturers invest to address transition risk. In addition, the expert practitioners agreed that the model is useful. In conclusion, since there is no transition risk assessment available in academia, the techno-economic assessment model is a novel addition that serves as an alternative to the qualitative ESG assessment approach.