Investor Exposure to Climate Risks through Investment Funds

Abstract

This paper assesses the transition climate risk exposure of European investment funds based on brown asset holdings. We then use confidential data on fund liabilities to estimate the indirect exposure of various investor categories to transition climate risks through their holdings of fund shares. We show that a large number of funds appears vulnerable to climate shocks, leading to substantial transmission risks to various types of investors, in particular insurers and households. Based on panel regressions, we also find that, unlike households, insurers seem aware of this risk and integrate climate risk exposure as a criterion in their fund selection process.

Keywords: Climate risk, contagion, financial stability, investment funds, transition risk

JEL Classification: G11, G23, Q54