Climate Risk, Carbon Pricing, and the Role of Investors

Climate change is not only an environmental issue but a capital markets risk management challenge. In this episode of the Future of Finance podcast, Georges Dyer speaks with Bob Litterman, former Partner and Head of Risk Management at Goldman Sachs and Chair of the CFTC Climate-Related Market Risk Subcommittee. Bob shares why climate change should be understood through the lens of systemic risk, incentives, and pricing distortions. This conversation examines what climate risk means for institutional investors, sovereign competitiveness, and long-duration capital allocation. Key themes include: Physical vs. transition risk from a portfolio perspective Why carbon pricing corrects a structural market failure The role of carbon border adjustment mechanisms Global fossil fuel subsidies and capital misallocation Financial regulatory frameworks for climate risk The evolution of carbon accounting and compliance markets For CIOs, trustees, asset managers, and policy leaders, this discussion explores how incentive structures shape capital flows and how markets may reprice climate risk faster than expected. 00:00 Introduction and Background 02:47 Climate Risk as a Risk Management Problem 05:41 Physical vs. Transition Risk 09:52 Why Carbon Pricing Is Foundational 14:22 Political Economy of Carbon Taxes 18:17 Investment Gaps in the Low-Carbon Transition 21:30 Carbon Accounting and Embedded Emissions 27:58 CFTC Climate Risk Report and Financial System Implications 35:04 Extreme Weather and Financial Stability 50:51 Vision for the Future of Finance   Resources Bob mentions: MANAGING CLIMATE RISK IN THE U.S. FINANCIAL SYSTEM | Report of the Climate-Related Market Risk Subcommittee, Market Risk Advisory Committee of the U.S. Commodity Futures Trading Commission REPORT TO THE PRESIDENT Extreme Weather Risk in a Changing Climate: Enhancing prediction and protecting communities