Financial Analysts Journal, forthcoming.
31 Pages Posted: 7 Jan 2021 Last revised: 25 Mar 2021
Date Written: January 28, 2021
We analyze how the use of different climate risk measures leads to different portfolio carbon outcomes and risk-adjusted returns. Our findings are synthesized in a rules-based investment framework, which selects a different type of climate metric across industries and weighs industries in the portfolio based on the variability of carbon outcomes among firms within each industry. We conclude that analyzing the merits and applicability of various climate data can help investors manage climate risk while increasing risk-adjusted returns.
Keywords: climate change, investments, factor investing, ESG, environment, climate finance, decarbonization
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