The role of financial and carbon markets in the sustainability transition

Carbon is fundamental for life on Earth and for humans. The last century has witnessed an increase in concentration of carbon dioxide in the atmosphere due to anthropogenic activities. This has generated abrupt and irreversible changes in climate with possible consequences on production, consumption and livelihood of humans. Charging a reliable price to carbon might represent one way to reach an ideal level of carbon emissions leading to sustainable consumption, production and investment patterns. According to some studies, the marketplace would be the ideal solution at policy level to provide a price to carbon. On the other hand, an appropriate price to carbon is at the backbone to undertake a full transition towards sustainability of the financial sector, among others. Sustainable finance entails tackling climate-related risk along with reliable information and (carbon) price signals for investors. The following work will be dealing with some aspects related to the role of carbon and financial markets in the transition towards sustainability. The first chapter will adopt a methodology including lasso-based optimization in time series econometrics to analyse EU ETS price behavior with respect to a wide set of variables including CO2. The second chapter will be analysing profiles of EU countries in terms of environmental performance, energy efficiency and renewable sources via cluster algorithm. The third chapter is an exploratory work on the role of financial innovation tackling specific classes of risk of sustainability-oriented projects including climate-related risk. Considering all the limitations of the methodology, results highlighted how carbon and financial markets need to function under the same pillars (e.g., commitment, transparency, price signals). The overall aim of the dissertation will be to investigate on the role so far of markets towards the sustainability transition considering its structural limitations (e.g., equity).