Spotlight interview: János Hidi

We recently welcomed Sustainable Investment Manager János Hidi to the Cambridge Econometrics team in Budapest. János will be taking forward our Sustainable Investment service at a critical time for the financial sector managing climate risk and building climate resilience. We asked János to tell us a bit more about what he is looking forward to about this new and exciting role, his thoughts about managing climate-related financial risk, and what inspired him to work for Cambridge Econometrics in the first place.

Tell us a little bit about yourself and your role at Cambridge Econometrics.

I am a bridge between client needs and Cambridge Econometric’s  macroeconomic analysis, managing projects to help clients get clear answers and help them base their decisions on evidence in sustainable investment and other industry competitiveness studies. My 15 years of experience in macroeconomic and industry analysis in telecom, IT and energy helps me better understand what clients expect from economic modelling and analysis.

What project are you working on at the moment?

Through our partnership with Ortec Finance our clients may understand the financial consequences of various macroeconomic scenarios, some of which, but not all, are sustainable in the long term. If we fail to transition towards a sustainable path, the business-as-usual financial calculations will no longer hold up, prompting owners and managers of financial assets to adjust their portfolios.

What inspired you to work for Cambridge Econometrics?

When working at an oil company I have experienced the enormous challenges that lie ahead of the decarbonisation of the economy, especially in the energy and transportation sectors. There are regulatory, technological, behavioural, and financial requirements for the transition to be successful. At Cambridge Econometrics we can support the transition with well-founded economic analysis.

What are you looking forward to most about your new role?

I see a booming public interest in sustainability, climate change and its economic impact, with an increasing number of governments and organisations demanding action for an accelerated transition. At the core of inaction lies the belief that business-as-usual scenarios are possible to maintain, and that a green transition will come at a substantial economic cost. However, modelling results suggest that the green transition can be beneficial overall, not only in terms of health and natural environmental outcomes, but also in terms of GDP, competitiveness, and jobs.

At Cambridge Econometrics I can be part of this effort and help clients in the finance and banking sectors make well-founded long-term plans, and hopefully contribute to better financial and investment decisions.

How can economists help solve the climate crisis?

Although we could go a long way to decarbonise our economy using existing technologies, the world is too slow to implement the required changes to meet the target set in the Paris Agreement. This is fundamentally a resource allocation problem, which is a core subject of economics. The global economy needs to allocate about 3-4% of its annual GDP over the next three decades to the climate problem, along with the required behavioural changes.

To accomplish this, we must change the economic incentives of consumers and producers, with carefully set regulations, taxes, and subsidies, while also improve international cooperation. The likely impact of these measures on the economy, from employment to investments, can be estimated using economic models. Research shows that the transition towards a sustainable path can be beneficial overall, and climate science suggests that there is no other way, either. We therefore need to find the way to allocate the required resources to climate mitigation. Integrated assessment models like E3ME, which considers the interactions between the economy, energy, and the environment, can help assess the impact of green investments on GDP and employment. E3ME can also take account of how low-carbon policies affect industries, and in turn, consumers.

How can we tackle the financial climate risks?

Financial investors must also respond to the climate challenge, by considering the long-term climate impact on their portfolios, because the transition towards carbon neutrality will trigger asset revaluations. Pension funds, asset managers, commercial banks, as well as central banks are becoming increasingly aware of the implied risks. The resilience of any financial portfolio can be assessed using climate stress tests, which look at the financial performance of a portfolio under different climate related scenarios. This is a new aspect from which the macro financial stability needs to be looked at. Furthermore, direct physical risks related to severe weather events induced by the changing climate will have significant consequences on the economy across the globe, which must be considered in financial calculations. Through my new role as Sustainable Investment Manager, I hope to help the finance and banking sector bring quantified transition and physical risks into these evaluations using climate scenario modelling.

What do you like to do when you are not working?

Reading, hiking, playing football are great pleasures, but since I became a father of two children, family became priority.

For more information on our Sustainable Investment service click here. You can also follow us on LinkedIn and Twitter for our latest news and collaborations.

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