ESG and Downside Risks Article Swipe
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· 2023
· Open Access
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· DOI: https://doi.org/10.1093/oso/9780192889195.003.0006
· OA: W4384948450
Due to their long-term horizons, pension funds face enhanced exposures to the long-lived effects of many environmental, social, and governance (ESG) risks. Moreover, given the potential consequences of being underfunded, pension funds are particularly exposed to ESG-related downside shocks, especially those related to climate change. In particular, with wealth protection being an important consideration for fiduciaries, pension managers have a strong need to identify and address ESG-related downside risks. We discuss the implications of these risks, provide evidence on institutional investors’ perspectives on climate-related downside risks, and discuss 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.
