Climate Risk and Asset Prices

Financial markets help manage climate risks by shifting investments toward green assets and enabling risk-sharing globally. This requires prices to reflect climate risks accurately. Real estate, being location-dependent, provides insights into physical risks like floods and wildfires. A study on U.S. coastal states found that exposed homes (to sea level rise) were priced lower when climate concerns increased. Similarly, in stock markets, firms with strong environmental scores performed better during climate-related crises. This suggests climate risks are priced in asset markets, though further research is needed for better risk measures and financial instruments.