Sustainability Attribution: The case of carbon intensity

Forthcoming in the Journal of Impact & ESG Investing

Posted: 14 Jun 2021 Last revised: 13 Aug 2021

See all articles by Guido Bolliger

Guido Bolliger

Asteria Investment Managers

Dries Cornilly

Asteria Investment Managers

Date Written: July 27, 2021

Abstract

This paper proposes a method to decompose the carbon intensity of a portfolio with respect to a benchmark into an allocation and a selection component. The carbon intensity decomposition allows a better understanding of the sources of the difference between the carbon footprint of a portfolio and that of its benchmark. As such, it prevents greenwashing by analyzing whether the carbon exposure of a portfolio results from active stock selection choices on the part of the manager or from passive sector exclusion decisions. Our approach is based on methods developed for traditional performance attribution. We discuss an equity example using the MSCI ACWI Sustainable Impact Index and a fixed income example around the ICE BofA Global Corporate Green Bond Index. In the latter example, we show that a higher portfolio carbon intensity does not necessarily contradict the portfolio’s stated ESG or Impact objectives. Our methodology can easily be extended to any other sustainability or impact metric that is constructed as a weighted average of asset scores, providing greater precision in analyzing the sources and implications of incorporating ESG into portfolio construction.

Keywords: Carbon intensity, ESG investing, ESG metrics, Impact investing

JEL Classification: Q5, G1

Suggested Citation

Bolliger, Guido and Cornilly, Dries, Sustainability Attribution: The case of carbon intensity (July 27, 2021). Forthcoming in the Journal of Impact & ESG Investing, Available at SSRN: https://ssrn.com/abstract=3859497 or http://dx.doi.org/10.2139/ssrn.3859497

Guido Bolliger

Asteria Investment Managers ( email )

Rue du Rhône 62
Geneva, 1204
Switzerland

Dries Cornilly (Contact Author)

Asteria Investment Managers ( email )

Rue du Rhône 62
Geneva, 1204
Switzerland

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
307
PlumX Metrics