Fighting climate change as a global equity investor

Benoît Mercereau, Guillaume Neveux, João Paulo C. C. Sertã, Benoît Marechal, Gianluca Tonolo
2020 Journal of Asset Management  
How could global equity investors fight climate change and what are the implications for their portfolios? We construct a new climate alignment database to address these questions. Investors can fight climate change in two ways: by funding firms aligned with a sub 2 °C scenario; and by engaging firms to lower their climate footprint. Investing in climate-aligned firms does not raise portfolio risk much. For example, a simple 1.5 °C equity portfolio is only 0.9 pp more volatile than global
more » ... es. The reason is simple: most sectors have climate-aligned firms. Hence, "low-temperature" portfolios can diversify across sectors. Engagement has huge potential. All firms adopting their sector's existing best practices may bring the world economy back on a 2 °C trajectory. Moreover, engagement does increase portfolio risk, and may even boost returns. Overall, investors can fight climate change without foregoing returns or increasing portfolio risk substantially.
doi:10.1057/s41260-020-00150-9 fatcat:kwfqcgjzpzglvdti7r3kjgvphu