Decarbonizing Institutional Investor Portfolios: Helping to Green the Planet or Just Greening Your Portfolio?

Abstract

We study how institutional investors that join climate-related initiatives decarbonize their equity portfolios. Decarbonization can occur either by re-weighting portfolios toward lower carbon-emitting firms or, alternatively, through corporate changes by influencing portfolio companies to reduce their emissions. We find that portfolio re-weighting is the dominant decarbonization strategy among members of voluntary climate initiatives, particularly those based in countries with carbon pricing schemes. While member investors reduce their portfolio exposure to carbon risk, we find little evidence that such initiatives lead to real-world emissions reductions.

Keywords: climate change, decarbonization, GHG emissions, sustainability, institutional investors, CDP, Climate Disclosure Project, Climate Action 100+

JEL Classification: G15, G23, G30, M14