Pricing of climate-related risks in financial markets

Awareness among market participants of these vulnerabilities in the economy should translate into price adjustments in financial markets, with companies with unsustainable business models facing greater hurdles when accessing capital markets. In contrast, companies with sustainable business models should attract greater interest from investors and thus find it easier to attract cheaper financing. The Bank for International Settlements (BIS), in collaboration with De Nederlandsche Bank (DNB), brought together several experts (including scholars, market participants and central bankers) in September 2022 to share insights on the extent to which financial markets price climate-related risks. In this DNB Analysis, we provide an overview of (academic) research on how financial markets price climate-related risks and we share insights based on our own research. We use this as a basis to make recommendations for promoting the pricing of climate-related risks.