Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Factor Investing in Paris
T2 - Managing Climate Change Risk in Portfolio Construction
AU - Kolle, Janina
AU - Lohre, Harald
AU - Radatz, Erhard
AU - Rother, Carsten
PY - 2022/12/7
Y1 - 2022/12/7
N2 - The 2015 Paris Agreement is a landmark in limiting emissions and targeting global warming well below 2C, preferably 1.5C compared to pre-industrial levels. In this light, we investigate how to efficiently construct equity portfolios that help mitigating climate change risk but at the same time enable harvesting well-established return drivers such as value, momentum or quality. A pure reduction in greenhouse gas intensity or a divestment from fossil fuel sectors is not necessarily leading to a better temperature alignment of a portfolio. Given the limited set of temperature-aligned assets, keeping the average temperature increase below 2 degrees comes with considerable active risks. To this end, we propose a net zero portfolio construction framework that brings temperature alignment together with a reduction in carbon intensity while harvesting equity factor premia.
AB - The 2015 Paris Agreement is a landmark in limiting emissions and targeting global warming well below 2C, preferably 1.5C compared to pre-industrial levels. In this light, we investigate how to efficiently construct equity portfolios that help mitigating climate change risk but at the same time enable harvesting well-established return drivers such as value, momentum or quality. A pure reduction in greenhouse gas intensity or a divestment from fossil fuel sectors is not necessarily leading to a better temperature alignment of a portfolio. Given the limited set of temperature-aligned assets, keeping the average temperature increase below 2 degrees comes with considerable active risks. To this end, we propose a net zero portfolio construction framework that brings temperature alignment together with a reduction in carbon intensity while harvesting equity factor premia.
M3 - Journal article
VL - 20
SP - 35
EP - 51
JO - Journal of Investment Management
JF - Journal of Investment Management
IS - 4
ER -