Readings for Week 13


Wed., Apr. 10

After reading and discussing Condon (2021), you should be able to:

  1. Explain the main factors contributing to the mispricing of climate risks in financial markets and the potential impacts of this mispricing.
  2. Evaluate the difficulties and constraints in measuring and reporting climate-related financial risks.
  3. Understand and examine the suggested policy actions to tackle climate risk mispricing, such as mandatory disclosure and other supporting regulations.

Guiding Questions

This paper is published in a law journal, which has a different format and writing style compared to the scientific papers we have read so far. However, it is still quite accessible to readers from various backgrounds. As you read, please make note of any terms or concepts that you find unclear or would like to discuss further in class.

Additionally, consider the following guiding questions while reading:

  1. Introduction
    1. What is the central issue the paper discusses concerning climate risk and financial markets?
    2. What are the possible effects of climate risk mispricing that are highlighted in the introduction?
  2. Climate Risk and Equity Misvaluation
    1. What data does the paper provide to back up the assertion that markets are underestimating climate risks?
    2. The paper outlines several key factors contributing to climate risk mispricing. In your opinion, which of these factors is the most important, and why?
    3. How do the various factors of mispricing work together to hinder market correction?
  3. Societal Harm of Climate Risk Underassessment
    1. In what ways can the mispricing of climate risks contribute to increased physical harm from climate change?
    2. Explain the concept of a “climate bubble” and how it could pose a systemic risk to the financial system.
    3. Why is disclosure by itself not enough to solve the issue of climate risk mispricing?
  4. Recommendations
    1. What role does the Securities and Exchange Commission (SEC) play in addressing climate risk mispricing?
    2. How can auditors and climate experts help improve the assessment and disclosure of climate risks?
    3. Beyond disclosure, what other supporting policies does the paper recommend to address climate risk mispricing?
  5. Conclusion


Condon, M. (2021). Market myopia’s climate bubble. Utah Law Review, 63(2022).