Decarbonizing Institutional Investor Portfolios: Helping to Green the Planet or Just Greening Your Portfolio?
75 Pages Posted: 20 Sep 2022 Last revised: 29 Sep 2023
Date Written: September 28, 2023
We study how institutional investors that join climate-related investor initiatives decarbonize their equity portfolios. Decarbonization can be achieved either by re-weighting portfolios towards lower carbon emitting firms or alternatively via targeted engagements with portfolio companies to reduce their emissions. Our findings indicate that portfolio re-weighting is the predominant greening strategy by climate-conscious investors, in particular by those based in countries with carbon emissions pricing schemes. We do not uncover much evidence of engagement even after the 2015 Paris Agreement. Furthermore, we find no evidence that climate-conscious investors allocate capital towards firms developing climate patents, but they do re-weight towards firms starting to generate green revenues. Overall, our analysis raises doubts about the effectiveness of investor-led initiatives in reducing corporate emissions and helping an all-economy transition to “green the planet”.
Keywords: climate change, decarbonization, GHG emissions, sustainability, institutional investors, CDP, Climate Disclosure Project, Climate Action 100+
JEL Classification: G15, G23, G30, M14
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