The $2 trillion infrastructure plan unveiled in March by the Biden administration marks a key turning point for U.S. climate policy and signals a heightened commitment to combating climate change by the U.S. government. Until recently, climate risk was a distant externality, largely uncaptured by market mechanisms and only partially reflected in asset prices. This dynamic is changing rapidly, spurred on by government interventions like the Biden administration's plan, alongside several other competing forces. Globally, climate risk will be increasingly reflected in market prices, leading to a potentially dramatic repricing across asset classes, sectors and companies.
Indeed, it is no longer a question of if this repricing will occur. Rather, the real question is whether the transition will be an orderly one over time ushered in by government measures, better climate analytics and gradual market adjustments, or an abrupt, jarring decline in market sentiment triggered by a climate "Minsky moment" — a sudden, all-at-once adjustment in asset prices.