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

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

Chia, Francis (TU Delft Technology, Policy and Management)

Annema, J.A. (mentor)
van der Voort, H.G. (graduation committee)
Kamali, Farahnaz P. (graduation committee)

Delft University of Technology

Engineering and Policy Analysis

2022-01-25

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.

Transition risk
Climate risk
Auto sector
Cash flow risk
Bottom-up approach
Techno-economic analysis
Climate change
Institutional investing

http://resolver.tudelft.nl/uuid:0a7e5c5e-46bb-42ee-887d-b1517dda470c

Student theses

master thesis

© 2022 Francis Chia