  We build a model of a financial market where a large number of firms
determine their dynamic emission strategies under climate transition risk in
the presence of both green-minded and neutral investors. The firms aim to
achieve a trade-off between financial and environmental performance, while
interacting through the stochastic discount factor, determined in equilibrium
by the investors' allocations. We formalize the problem in the setting of
mean-field games and prove the existence and uniqueness of a Nash equilibrium
for firms. We then present a convergent numerical algorithm for computing this
equilibrium and illustrate the impact of climate transition risk and the
presence of green-minded investors on the market decarbonization dynamics and
share prices. We show that uncertainty about future climate risks and policies
leads to higher overall emissions and higher spreads between share prices of
green and brown companies. This effect is partially reversed in the presence of
environmentally concerned investors, whose impact on the cost of capital spurs
companies to reduce emissions.
