Net-zero portfolios are becoming a popular vehicle to align investors’ incentives with climate scenarios. We show that the decision and timing to divest companies from NZ portfolios has a strong economic implication for their stock returns. This divestment process is captured in our new, forward-looking measure, distance-to-exit (DTE), which measures the distance in years until company gets excluded from the NZ portfolio. We show that companies with greater values of DTE have higher valuation ratios and higher expected returns consistent with the idea that DTE captures transition risk. The effect is robust to different specifications of divestment hierarchy and holds after controlling for alternative measures of transition risk, such as emission levels, their growth, and intensity. Overall, we conclude that institutional investors’ pressure is already priced in stock returns.