Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/190281 
Year of Publication: 
2018
Series/Report no.: 
ADBI Working Paper No. 860
Publisher: 
Asian Development Bank Institute (ADBI), Tokyo
Abstract: 
This paper analyzes the approaches adopted by institutional investors to manage climate risk in their portfolios and proposes policies to increase climate awareness in this large segment of the capital markets. Because of their size and their role as conduit of savers' climate concerns to the capital markets, most non-bank financial institutions are ideally positioned to steer corporate capital allocation toward more sustainable uses. Over the past decades, an increasing number of institutional investors have adopted strategies to mitigate climate exposure. These include negative screening, positive screening, active ownership, sustainability ratings, and hedging of climate risks. These strategies reflect specific fund manager mandates and the recognition that climate risks can have a tangible impact on financial assets' valuations and, as a result, institutional fund performance. We review the evidence about the adoption of these strategies, in both advanced and developing capital markets. We then analyze the pros and cons of each strategy in promoting more sustainable climate practices and identify best practices. We conclude with policy recommendations for capital markets regulators to incentivize the adoption of sustainable practices among institutional investors.
Subjects: 
climate risks
asset management
institutional investor
carbon pricing
sustainability
JEL: 
G11
G21
G23
G24
G28
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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