ESG and Downside Risks: Implications for Pension Funds
Wharton Pension Research Council Working Paper No. 2021-10
Published in Hammond, P.B., R. Maurer, and O.S. Mitchell (Eds.) (2023). Pension Funds and Sustainable Investment: Challenges and Opportunities. Oxford: Oxford University Press.
Posted: 7 Jul 2021 Last revised: 19 May 2023
Date Written: June 30, 2021
Abstract
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.
Keywords: Institutional investors, pension funds, ESG risks, climate risks, downside risks
JEL Classification: G11, G23, G32, Q54
Suggested Citation: Suggested Citation
European Corporate Governance Institute (ECGI) ( email )
c/o the Royal Academies of Belgium
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Laura T. Starks
University of Texas at Austin - Department of Finance ( email )
Red McCombs School of Business
Austin, TX 78712
United States
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512-471-5073 (Fax)