Climate Transition and Bonds: Risk or Opportunity?

Changes in public policy and investor-driven climate initiatives could significantly redirect the flow of investments toward greener companies and technologies that limit carbon emissions. The transition to a low-carbon economy may therefore impact stock and bond prices, presenting investors with potential risk — and opportunity.

We considered a hypothetical fixed-income portfolio manager who uses, as benchmarks, the market-capitalization-weighted MSCI Investment Grade Corporate Bond Indexes denominated in USD, EUR and GBP. We used MSCI’s bond-level transition Climate Value-at-Risk (Climate VaR) metric as our measure of the potential valuation impact from transition-induced changes in bond prices.1

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