Darragh McLaughlin (University of Cambridge) will be presenting his work on “Trump, Flows and Re-Transition Risk”.
About this session: This project introduces the concept of (re)-transition risk and investigates (re)-transition risk in Sustainable Finance Disclosure Regulation (SFDR) funds. The paper examines whether capital reallocates from Article 8 (sustainability-promoting) funds back to Article 6 (non-sustainable) funds in response to geopolitical policy shifts. Using the US withdrawal from the Paris Climate Accords as a natural policy shock, the study extends Kacperczyk (2026)'s firm-level asset pricing model to the fund level, linking expected returns to transition risk cash-flow exposures through the concept of a fund’s weighted average carbon value (WACV). Analysing daily fund-level data from Irish-domiciled SFDR funds, the paper finds some evidence of re-transition risk pricing, particularly in passive funds with USD exposure and amongst institutional investors. High WACV funds in contrast, do not experience differential flow responses around the policy shock. This paper introduces the concept of re-transition risk and provides a potential mechanism through which it may evolve, it is also the first study to examine SFDR fund flows using daily data. The findings suggest that SFDR fund flows may be vulnerable to policy uncertainty, with potential financial stability implications for the European asset management sector.
When: Monday 4th of May
12.30-13.45 Talk, Q&A and light lunch, followed by networking
Where: SG1 (Alison Richards Building) on the Sidgwick site.
Lunch: A light lunch will be provided, but bring along your drink of choice!
Zoom: You can also join us virtually on Zoom.
The weekly climaTRACES workshops,organised by Kamiar Mohaddes and Henning Zschietzschmann, are attended by a diverse group of people from economics, geography, politics, engineering, business, earth sciences, natural sciences, and history, generating interdisciplinary discussion. One person leads the session, on either a paper they have written, a work in progress, or just an idea they have and would like feedback on. This is also an opportunity for people to find our more about the team on what climaTRACES have been up to and what future events and research projects are being developed.