Sautner, ZachariasStarks, Laura T.2023-05-232023-05-232021-06-302021-07-02https://repository.upenn.edu/handle/20.500.14332/44103Due to their long-term horizons, pension funds face enhanced exposures to the long-lived effects of many ESG risks. Moreover, given the potential consequences of being underfunded, pension funds are particularly exposed to ESG-related downside risks, especially those related to climate change. We discuss the implications of these risks and provide evidence on institutional investors’ perspectives on climate-related downside risks and how these risks are priced in financial markets. We also document how institutional investors address climate risks in the investment process, with a focus on the role of engagement versus divestment.All findings, interpretations, and conclusions of this paper represent the views of the authors and not those of the Wharton School or the Pension Research Council. © 2021 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.G11, G23, G32, Q54Institutional investorspension fundsESG risksclimate risksdownside risksEconomicsWorking Paper