Climate Finance
In this article, we review the literature studying interactions between climate change and financial markets. We first discuss various approaches to incorporating climate risk in macrofinance models. We then review the empirical literature that explores the pricing of climate risks across a large number of asset classes, including real estate, equities, and fixed income securities. In this context, we also discuss how investors can use these assets to construct portfolios that hedge against climate risk. We conclude by proposing several promising directions for future research in climate finance. Expected final online publication date for the Annual Review of Financial Economics, Volume 13 is November 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.