Wharton Pension Research Council Working Papers

Document Type

Working Paper

Date of this Version



Due to their long-term horizons, pension funds face enhanced exposures to the long-lived effects of many ESG risks. Moreover, given the potential consequences of being underfunded, pension funds are particularly exposed to ESG-related downside risks, especially those related to climate change. We discuss the implications of these risks and provide evidence on institutional investors’ perspectives on climate-related downside risks and how these risks are priced in financial markets. We also document how institutional investors address climate risks in the investment process, with a focus on the role of engagement versus divestment.


Institutional investors, pension funds, ESG risks, climate risks, downside risks

JEL Code

G11, G23, G32, Q54

Working Paper Number


Copyright/Permission Statement

All findings, interpretations, and conclusions of this paper represent the views of the authors and not those of the Wharton School or the Pension Research Council. © 2021 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.


We are grateful to our co-authors Andreas Hoepner, Emirhan Ilhan, Philipp Krueger, Ioannis Oikonomou, Grigory Vilkov, and Xiaoyan Zhou, as this paper builds on some of our joint work.

Included in

Economics Commons



Date Posted: 02 July 2021