Back to the Future: The Role of Forward-looking Climate Metrics in Decarbonization Portfolios

36 Pages Posted: 17 Jun 2022 Last revised: 5 Aug 2022

See all articles by Jieyan Fang-Klingler

Jieyan Fang-Klingler

Quoniam Asset Management GmbH

Maximilian Stroh

Quoniam Asset Management

Frederik Wisser

Quoniam Asset Management GmbH; EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Finance and Accounting

Date Written: August 4, 2022

Abstract

We find that forward-looking climate metrics, such as a firm’s carbon emission target, contain information about future carbon emission growth rates. Better forward-looking metrics are associated with lower future carbon emission growth rates relative to otherwise similar firms. This relation is stronger in the period after the Paris Agreement. However, firms with better forward-looking metrics are associated with inferior backward-looking metrics such as higher current carbon emissions. Thus, there is a tradeoff between forward- and backward-looking metrics when constructing decarbonization portfolios. Finally, we find evidence that mutual funds are more focused on backward-looking metrics even though this could hinder them from investing in many companies that contribute to decarbonizing the global economy.

Keywords: Carbon Emissions, Climate Change, Climate Targets, Decarbonization, ESG, Green Patents

JEL Classification: G11, G18, Q54

Suggested Citation

Fang-Klingler, Jieyan and Stroh, Maximilian and Wisser, Frederik, Back to the Future: The Role of Forward-looking Climate Metrics in Decarbonization Portfolios (August 4, 2022). Available at SSRN: https://ssrn.com/abstract=4135443 or http://dx.doi.org/10.2139/ssrn.4135443

Jieyan Fang-Klingler (Contact Author)

Quoniam Asset Management GmbH ( email )

Frankfurt
Germany

Maximilian Stroh

Quoniam Asset Management ( email )

Westhafen Tower
Westhafenplatz 1
Frankfurt am Main, 60327
Germany

HOME PAGE: http://www.quoniam.com

Frederik Wisser

Quoniam Asset Management GmbH ( email )

Frankfurt
Germany

EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Finance and Accounting ( email )

Gustav-Stresemann-Ring 3
Wiesbaden, Hessen 65189
Germany

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