The 2° Investing Initiative (2DII) was recognised by the awards judges for its innovative and timely modelling of the impact caused by the coronavirus pandemic.
2DII, a think tank promoting the integration of climate risks in investment strategies, published a series of 'snap' Covid-19 stress-test scenarios in March – the first to be developed in response to the global pandemic.
2DII's stress-test scenarios built on existing climate risk modelling work, identifying similarities with the pandemic response. Overlapping features included cross-sectoral risk drivers, issues of time horizon and the secular nature of the risk.
The Covid-19 scenarios also incorporated health effects including mortality, sentiment effects in terms of consumer and investor response, as well as different policy responses.
Over $10 trillion in assets under management were tested using the scenarios within six weeks of launching the paper.
Jakob Thomae, managing director at 2DII, explains: "Our approach was to accept the radical uncertainty associated with the pandemic, in particular at the beginning, and use the best available knowledge we have about the relationship between key financial and economic variables to understand its potential effects across a range of scenarios."
As part of this exercise, 2DII built on existing partnerships with financial supervisors on climate stress-testing and scenario analysis. The institute will work with the European Insurance and Occupational Pensions Authority (EIOPA), building on its existing partnership, to use these scenarios as a way to strengthen its analysis of potential future market impacts of the Covid-19 crisis.
2DII also plans to launch a dedicated website designed to bring all the analytical resources together on the Covid-19 crisis as a repository for information, analytical insight, and tools to respond to the crisis.
The modelling can be classified as ESG research due to the massive social implications of the coronavirus outbreak, as demonstrated by the record numbers of social bond issuance in the wake of the pandemic. EF