Capstone Lectures: Economic sustainability · Economic Sustainability & Green Finance. Entrepreneurial Finance ... MD, Infrastructure and Real Estate Group, Global Banking and Markets,

David C. Broadstock

Capstone Lectures:Economic sustainability

Cost of damages to HK and MacauDue to Typhoons Hato and Parkhar

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HK$1 billion

Why ‘Economic’ sustainabilityI’m not sure I know anything about this…Lets begin by clearing up some possible misunderstandings…

• Economics is little more than the study of choice under uncertainty: Think carefully, and you will appreciate – we all do this from the day we are born!

• In case you are a finance major: The financial sector is one component of the whole economy, thus topics of finance fall under this category

• In case you are an accounting major: Accounting statements provide a snapshot of firm level activities, and firms are a critical component of the ‘circular’ economy. They provide jobs, and access to goods and services.

• They are in many ways one of the most interesting unit of observation to economists.

Lecture outlineWhat we will cover today• Something about our in-house expertise

• Some ideas of possible topics to get you started

• A brief review of the energy-finance template

• A summary of ‘on-the-job’ relevance

• An introduction to the inaugural U-Kent/PolyU student competition

• A reminder of the Executives on Campus week

• The industry perspective

Areas of researchFacilitating ‘Finance for the future’

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Economic Sustainability & Green Finance

Entrepreneurial Finance & Fin-Tech

Five capitals underpin our focus4-capitals underpinning financial capital

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To facilitate direct and immediate engagement with industry, we take financial capital as our primary focus, and structure our ethos around the use of the four following capitals to help ensure the promotion of competitive industries:

• Natural capital: This includes the natural resources which are involved in the process of generating value-added

• Human capital: Reflects the role of knowledge accumulated through education

• Social capital: Reflects the benefits accrued to interpersonal communication and networking dynamics

• Physical capital: The process of manufacturing (manufactured capital) produces goods and services that hold a higher value-added

IntroductionsThe specialists you will meet today

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It is with great pleasure that we are able to welcome one of the regions most influential specialists in green financing:

• Jonathan Drew: MD, Infrastructure and Real Estate Group, Global Banking and Markets, The Hongkong and Shanghai Banking Corporation Ltd (HSBC)

We are also proud to have an active team of scholars dedicated to study, teaching and practice of economic sustainability:

• David C Broadstock: Theme co-ordinator• Alice Shiu• Raymond Li• Peng Zhang

Dr Alice ShiuEnergy Economist

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Alice has a lot of experience in the economics of energy and her current research interests include: Energy topics and empirical examination of Hong Kong public policies in the electricity sector.

Selected research topics:• “How much of a bill decrease are Hong Kong residents willing to accept for lower

electricity reliability?”• “Are Hong Kong’s electricity demands price-inelastic?” • “What is the estimated reduction in Hong Kong’s total electricity demand due to the

projected 40% electricity rate increase?” • “What is the estimated increase in Hong Kong’s town gas consumption by retail

consumers due to the projected 40% electricity rate increase?”

>HKSAR Government publishes the following data: Description Source

Electricity Consumption (Residential)(MWH) http://www.censtatd.gov.hk/hkstat/sub/sp90.jsp?tableID=127&ID=0&productType=8(1 Terajoule = 277777.778 KWH)

Weighted Average Electricity Price (Residential)($/MWH)

https://www.censtatd.gov.hk/hkstat/sub/sp90.jsp?productCode=B1100001

Electricity Consumption (Commercial)(MWH)

http://www.censtatd.gov.hk/hkstat/sub/sp90.jsp?tableID=127&ID=0&productType=8(1 Terajoule = 277777.778 KWH)

Weighted Average Electricity Price (Commercial) ($/MWH)

https://www.censtatd.gov.hk/hkstat/sub/sp90.jsp?productCode=B1100001

Electricity Consumption (Industrial) (MWH) http://www.censtatd.gov.hk/hkstat/sub/sp90.jsp?tableID=127&ID=0&productType=8(1 Terajoule = 277777.778 KWH)

Weighted Average Electricity Price (Industrial) ($/MWH)

https://www.censtatd.gov.hk/hkstat/sub/sp90.jsp?productCode=B1100001

Gas Consumption (Residential) (GJ) http://www.censtatd.gov.hk/hkstat/sub/sp90.jsp?tableID=128&ID=0&productType=8Gas Price (Residential) ($/GJ) https://www.censtatd.gov.hk/hkstat/sub/sp90.jsp?productCode=B1100001Gas Consumption (Commercial) (GJ) http://www.censtatd.gov.hk/hkstat/sub/sp90.jsp?tableID=128&ID=0&productType=8Gas Price (Commercial) ($/GJ) https://www.censtatd.gov.hk/hkstat/sub/sp90.jsp?productCode=B1100001Gas Consumption (Industrial) (GJ) http://www.censtatd.gov.hk/hkstat/sub/sp90.jsp?tableID=128&ID=0&productType=8Gas Price (Industrial) ($/GJ) https://www.censtatd.gov.hk/hkstat/sub/sp90.jsp?productCode=B1100001

Dr Alice ShiuWhere can I find the data?

• HKSAR Government publishes the following data:

Dr Alice ShiuWhere can I find the data? (continued)

Description SourceLPG Monthly Sales (kg) https://www.censtatd.gov.hk/hkstat/sub/sp140.jsp?productCode=B1010002

LPG Monthly Price ($/kg) https://www.censtatd.gov.hk/hkstat/sub/sp90.jsp?productCode=B1100001Real Monthly GDP ($M) https://www.censtatd.gov.hk/hkstat/sub/sp250.jsp?productCode=B1030001 (Nominal Monthly Quarterly

GDP),

Mean daily max temp (deg. C) http://www.hko.gov.hk/cis/monthlyExtract_e.htm?y=2015

Cooling degree month = CDMt (CDM) = max(monthly average of daily maximum temperatures - 18C, 0)Mean daily min temp (deg. C) http://www.hko.gov.hk/cis/monthlyExtract_e.htm?y=2015

Heating degree month = HDMt (HDM) = max(18C - monthly average of daily minimum temperatures, 0)Monthly rainfall = Rt = monthly sum of daily rainfall (mm)

http://www.hko.gov.hk/cis/monthlyExtract_e.htm?y=2015

Monthly bright sunshine hours = Bt = monthly sum of daily bright sunshine hours (Hours)

http://www.hko.gov.hk/cis/monthlyExtract_e.htm?y=2015

Monthly average wind speed Wt (Km/hour) http://www.hko.gov.hk/cis/monthlyExtract_e.htm?y=2015

Monthly average relative humidity RHt (%) http://www.hko.gov.hk/cis/monthlyExtract_e.htm?y=2015

• HKSAR Government publishes the following data:

The red lines denote the queues observed during daily rush hours on the CHT’s connecting roads. A

vehicular trip via the 1.8 km CHT may take up to 30 minutes.

Research on a real-world problemThe Cross Harbor Tunnel’s severe congestion

Capstone research templateCross Harbor tunnel continued.

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The research is to use publicly available data to answer the question: Can Hong Kong price-manage its cross-harbor-tunnel congestion? This question is a complicated real-world problem, one that requires:

• An estimation of the price responsiveness of tunnel usage by nine vehicle types.

• A prediction of each vehicle type’s usage response to the Transport and Housing Bureau’s 2013 toll-change proposals.

Bad traffic = bad air!Cross Harbor tunnel continued.

Dr Raymond LiEnergy Economist

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Current research topics:• To be added

Suggested capstone topics:• To be added

Dr Peng ZhangEnvironmental Economist

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Current research topics:• Estimating the economic cost of climate change on Chinese agriculture and manufacturing

sector• Estimating the economic cost of air pollution on labor productivity, migration, mental

health, and cognitive ability

Suggested capstone topics:• Is climate change real?

• Download the temperature data, Plot time trend, Is there an increasing trend?, Which regions have a greater increasing trend?

• The Chinese government claims a war on reducing air pollution• Download air pollution data, Plot time trend, Is there an decreasing trend?, Which

regions have a greater decreasing trend?

Dr David BroadstockDeputy Director, CESEF

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Deputy Program Director – MoF, Financial Economics of Energy & Environment

Incoming council Member for IAEE (Asia and Oceania)

Editor, The Energy Journal

Current research• See: http://www.scmp.com/business/banking-finance/article/2112354/going-green-

changing-face-corporate-finance

Suggested capstone topics:• Does green finance displace regular investments?• How do HK stock prices react to extreme weather hazards?• Does ESG disclosure enhance firm value?

• Direct benefits through sales etc. / Indirect benefits through enhanced reputation• What are the environmental benefits of blockchain?

Dr David BroadstockCapstone thoughts

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Carbon trading in China is likely to be a particularly important topic of the next few years

• In November 2017, China’s nationwide carbon trading platform was launched. This is set to become the world’s largest carbon trading market.

• Yet the system is not yet fully defined, and will likely be implemented in an imperfect fashion

• Immediately, thousands of companies will be confronted with the need to employ carbon trading specialists.

• The market will rapidly become the largest emissions trading system in the World• UNDP estimates that by 2020, the value of the market could be as large as RMB

4,500 Billion!!

Dr David BroadstockCapstone template (reproducible in R)

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The data: The full history of the Chinese stock market at daily frequency, having around 8 million observations on 2,575 stocks. (This is verging on big-data.)

Prior: Domestic price regulation helps shield Chinese firms from international oil price uncertainty.

The model:

Rit=a+b1RMt+b2HMLt+b3SMBt+b4Oilt

The hypothesis:• Changes in international oil prices can impact expected future cash flows, and thus in turn

the stock price. Given oil (and oil derivatives) are a factor input into generating other goods and services, a rise in its costs translates to a rise in the cost of doing business, and hence lower profits and thus lower stock prices e.g. b4<0

Dr David BroadstockThe evidence

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The percentage of firms affected by an oil shock is:

21.17%Of which the effect is almost completely negative i.e. a rise in the price of oil will result in a negative impact to stock prices.

Dr David BroadstockSome extensions to the template

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There are a number of straightforward ways to extend this:• Replace oil with another risk factor

• Price of electricity, weather/pollution variables etc.• Asymmetric reaction to price rises and price declines• Unexpected versus expected price movements

• Refer to Kilian (2009) AER, “Not all oil shocks are alike”• Search for industry specific effects• Test for an ‘oil-implied’ trading strategy• Use high-frequency data (the microstructure of oil)

• I have tick level oil price data and can make a sample available to work with• Consider interactive effects (e.g. b1RMtOilt)• Replace price returns with volatility• Examine how firm characteristics correlate with the probability of being exposed to oil

risk

U-Kent/PolyUInnovation & Entrepreneurship competition

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On November 4th 2017, two teams of Capstone students will compete in an entrepreneurship game.

• The game will involve running a simulated business, with a view to making the most profit.

• The teams will be able to use this as their semester 1 capstone submission• But will need approval from their capstone advisor• And will need to summarize their experience in a 10 page ppt

• First prize: HK$3,000• Runner up: HK$800

• For information on the game platform, please visit: http://simventure.co.uk/evolution/

TO NOMINATE YOUR TEAM FOR THIS COMPETITION PLEASE [email protected]

BY 12 NOON ON OCTOBER 4th AT THE LATEST

U-Kent/PolyUInnovation & Entrepreneurship competition

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Some additional details:• The competition is run in real-time, with your UK peers handling the same challenges at

the same time• Competition run time Nov 4, 17:00-21:00, plus 30 minutes or so to confirm winners• Location, on campus (planned for multimedia lab in MMRC)

The competition• The scenario is that a group of entrepreneurs has bought a company which makes bicycles.• The team will run the company via the game for a set number of years within the time

frame of the competition.• The ‘winning’ team will be the one that makes the most profit for the company. • In the training scenarios, students will be able to ‘rewind’ the quarter (so undo any

disastrous decisions) this feature will not be enabled for the competition

TO NOMINATE YOUR TEAM FOR THIS COMPETITION PLEASE [email protected]

BY 12 NOON ON OCTOBER 4th AT THE LATEST

Executives on Campus weekOctober 3-6 – be sure to attend!!

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http://www.af.polyu.edu.hk/events/detail/341

> https://www.energyjobline.com/job/326164/market-and-ventures-associate/> https://www.linkedin.com/jobs/search/?keywords=energy%20%26%20finance

&location=China&locationId=cn%3A0> https://www.linkedin.com/jobs/energy-finance-jobs/?country=hk> https://www.greenenergyjobs.com/career-guide/energy-finance> https://www.greenjobs.co.uk/green-energy-finance-jobs.cms.asp> http://www.iigcc.org/> https://gresb.com/data/

Links to Job ResourcesThe market for economic sustainabilityIt is important to know that your capstone project can relate to job opportunities. Notwithstanding (i) the demand for carbon trading specialists in the region and (ii) the recently mandated ESG reporting in Hong Kong, there are many other opportunities in the job market:

Thanks for [email protected]