Journal
ANNUAL REVIEW OF FINANCIAL ECONOMICS, VOL 13, 2021
Volume 13, Issue -, Pages 15-36Publisher
ANNUAL REVIEWS
DOI: 10.1146/annurev-financial-102620-103311
Keywords
climate change; climate risk; physical risk; transition risk; ESG; environmental; social; and corporate governance
Categories
Funding
- Norges Bank Investment Management (NBIM)
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This article reviews the literature on interactions between climate change and financial markets, discussing approaches to incorporating climate risk in macrofinance models and exploring the pricing of climate risks across various asset classes. It also examines how investors can use different assets to hedge against climate risk and proposes potential future research directions in climate finance.
In this article, we review the literature studying interactions between climate change and financial markets. We first discuss various approaches to incorporating climate risk in macrofinance models. We then review the empirical literature that explores the pricing of climate risks across a large number of asset classes, including real estate, equities, and fixed income securities. In this context, we also discuss how investors can use these assets to construct portfolios that hedge against climate risk. We conclude by proposing several promising directions for future research in climate finance.
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