No Good Deed Goes Unpunished? Social vs. Investment Objectives

27 Pages Posted: 8 Jun 2022

See all articles by Tzee-man Chow

Tzee-man Chow

Research Affiliates, LLC

Feifei Li

Research Affiliates, LLC

Date Written: May 25, 2022

Abstract

Increasing interest in sustainable investing means managers are tasked with customizing portfolios to reflect investors' preferences on social issues, while also maintaining a certain investment style. Often, these are competing objectives. We investigate how the application of a carbon reduction constraint impacts a naïvely constructed global equity value strategy. Our findings show that a company’s valuation is highly correlated with its carbon metrics, creating an implementation challenge for investors who desire a portfolio that exhibits both deep-value and low-carbon characteristics. Investors can benefit by an understanding of the limitations presented by their dual objectives in order to make realistic trade-offs.

Keywords: Factor investing, value investing, ESG, SRI, impact investing, climate transition, carbon reduction, custom indexing.

JEL Classification: G11, G23, Q5, Q54, Q57, O16

Suggested Citation

Chow, Tzee-man and Li, Feifei, No Good Deed Goes Unpunished? Social vs. Investment Objectives (May 25, 2022). Available at SSRN: https://ssrn.com/abstract=4119660 or http://dx.doi.org/10.2139/ssrn.4119660

Tzee-man Chow (Contact Author)

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States
949-325-8754 (Phone)

Feifei Li

Research Affiliates, LLC ( email )

620 Newport Center Dr
Ste 900
Newport Beach, CA 92660
United States
949-325-8753 (Phone)
949-325-8953 (Fax)

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