Climate transition puts high-yield bond investors at risk Climate transition puts high-yield bond investors at risk Submitted By Madeleine Taylor | 09|06|2021 - 9:12am Investors in high-yield bonds may be more exposed to the risk of a climate transition than those in other debt and equity assets, according to new research from MSCI. Many investors are looking further down the ratings ladder because of the low-yield environment in fixed income, and the high valuations commanded by debt issuances marked as green or sustainable. The research team at MSCI looked at the risk to US corporate bond and equity benchmarks if policies were put in place to limit the increase in global temperature to 1.5 degrees by the year 2100. It found that high-yield bonds have a higher exposure to risks from a climate transition than other assets, including investment-grade fixed income and equities. High-yield corporate bonds had a downside repricing risk of -12.7 per cent, according to MSCIs Climate Value-at-Risk (Climate VaR) model. Meanwhile, the equity benchmark had a Climate VaR of -5.9 per cent, and the investment grade-corporate-bond benchmark showed the lowest level of transition risk, at -3.4 per cent. Institutional investors are increasingly focused on building greener portfolios, with reduced exposure to climate transition risk, writes the team at MSCI. Some might expect bonds to be less exposed to this risk as compared to equities, due to the seniority afforded to bonds by the capital structure.