Measuring the Carbon Exposure of Institutional Investors

Journal of Alternative Investments, Forthcoming

22 Pages Posted: 31 Mar 2020 Last revised: 13 Apr 2020

See all articles by Darwin Choi

Darwin Choi

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Zhenyu Gao

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Wenxi Jiang

CUHK Business School, The Chinese University of Hong Kong

Date Written: April 12, 2020

Abstract

We introduce a simple definition of carbon-intensive firms to measure institutional investors’ exposure to the emission intensities of portfolio companies. The definition is based on major emission industry sectors identified by the Intergovernmental Panel on Climate Change (IPCC). All firms in these industries are classified as carbon-intensive. We show that 13F institutions, on average, gradually reduce their carbon exposure relative to the US value-weighted market portfolio, from overweighting stocks of high-emission firms by 0.5% in 2001 to underweighting by 0.2%–0.7% since 2015, consistent with the view that investors have become more concerned about the financial implications of climate change. Compared with firm-level emission data obtained from vendors, our measure is free from selection issues and can be extended to early periods and to international markets, as it only depends on industry classifications and covers all stocks. We do not find the same divestment trend before 2000, when climate risks were less eminent.

Keywords: Carbon Emissions, Institutional Investors, 13F, Carbon Exposure, Divestment

JEL Classification: G11, G12, G23, Q54

Suggested Citation

Choi, Darwin and Gao, Zhenyu and Jiang, Wenxi, Measuring the Carbon Exposure of Institutional Investors (April 12, 2020). Journal of Alternative Investments, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3549648

Darwin Choi (Contact Author)

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

Zhenyu Gao

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong
(852)39431824 (Phone)

HOME PAGE: http://sites.google.com/site/gao515515/

Wenxi Jiang

CUHK Business School, The Chinese University of Hong Kong ( email )

Room 1250, Cheng Yu Tung Building
Chinese University of Hong Kong
Shatin, NT 06520
Hong Kong

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