Climate Change and Financial Stability : A Risk Assessment of Investment Funds

This paper studies the exposure of European investment funds to transition climate risks and its implications for the rest of the financial system. Based on granular data on investment funds’ assets and liabilities, we measure the percentage of brown assets in funds' portfolios and the extent to which other investor categories are indirectly exposed to climate risks through investment funds. We show that European investment funds invest a large percentage of their portfolios in brown assets, making them vulnerable to transition climate shocks. Among investor categories, insurers and households appear to be the most exposed to climate risks through the intermediary of investment funds. However, insurers seem to be aware of this risk and tend to invest in funds with low exposure to brown assets