To what extent has climate risk been priced into equity markets? How can we model such risks as the world moves toward net-zero targets? We show how climate has increased in importance in the last two years, with potential long-term implications for understanding equity markets.

Investors increasingly focus on building greener portfolios. Some might expect bonds to be less exposed to climate-transition risk compared to equities, due to the seniority of bonds in the capital structure. But does that logic hold at the portfolio level?

To what extent has climate risk been priced into equity markets? Is there a “brown” discount and a “green” premium? Has this shifted over time? How can we model such risks as the world moves toward net-zero targets? We examine the financial impact of climate transition risk on global equity markets.

The transition to a low-carbon economy could significantly redirect the flow of investments toward greener companies and technologies that limit carbon emissions. We consider the potential risk — and opportunity — for bond investors.

How can active managers integrate climate risk in their portfolios? We test four simple exclusion strategies on a sample global equity portfolio, examining their impact on the risk, return and market exposures.