Performance and Challenges of Net-Zero Strategies in the Context of the EU Regulation

51 Pages Posted: 3 Sep 2024

See all articles by Fabio Alessandrini

Fabio Alessandrini

University of Lausanne; Banque Cantonale Vaudoise

Eric Jondeau

University of Lausanne - Faculty of Business and Economics (HEC Lausanne); Swiss Finance Institute

Lou-Salomé Vallée

University of Lausanne - Faculty of Business and Economics (HEC Lausanne)

Date Written: September 01, 2024

Abstract

This paper presents a comprehensive comparative analysis of various portfolio construction techniques in the context of decarbonization and the pursuit of net-zero objectives aligned with the 2015 Paris Agreement. Specifically, we examine different strategies that qualify as Article 9 funds under EU regulations, focusing on carbon emissions reduction objectives, such as screening and tracking error minimization techniques. Our findings indicate that all approaches would have achieved the targeted emissions reductions over the 10-year period (2012-2021) analyzed. However, the method of decarbonization significantly affects ex-post tracking errors, with the more ambitious Paris-Aligned Benchmark requiring a substantial departure from the business-as-usual benchmark. Additionally, the tracking error minimization approach involves considerable reallocation of individual securities, potentially leading to, possibly undesirable, idiosyncratic exposures.

Suggested Citation

Alessandrini, Fabio and Jondeau, Eric and Vallée, Lou-Salomé, Performance and Challenges of Net-Zero Strategies in the Context of the EU Regulation (September 01, 2024). Swiss Finance Institute Research Paper No. 24-44, Available at SSRN: https://ssrn.com/abstract=4943816 or http://dx.doi.org/10.2139/ssrn.4943816

Fabio Alessandrini

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

Banque Cantonale Vaudoise ( email )

Place St-François 14
Lausanne
United States

Eric Jondeau (Contact Author)

University of Lausanne - Faculty of Business and Economics (HEC Lausanne) ( email )

Extranef 232
Lausanne, 1012
Switzerland
+41 21 692 33 49 (Phone)

HOME PAGE: http://people.unil.ch/ericjondeau/

Swiss Finance Institute ( email )

40, Boulevard du Pont-d'Arve
40, Bd du Pont-d'Arve
1211 Geneva 4, CH-6900
Switzerland
+41 21 692 33 49 (Phone)

Lou-Salomé Vallée

University of Lausanne - Faculty of Business and Economics (HEC Lausanne) ( email )

Quartier UNIL-Chamberonne
Lausanne, 1015
Switzerland

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