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
G11, G23, G32, Q54
Working Paper Number
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.
Date Posted: 02 July 2021