Scopes of carbon emissions and their impact on green portfolios

Théophile Anquetin, Guillaume Coqueret, Bertrand Tavin and Lou Welgryn

Economic Modelling, 2022, vol. 115, issue C

Abstract: The aim of this paper is to study the performance of carbon-based portfolios when all emissions scopes are accounted for. We formalize low-carbon mean-variance portfolio strategies by integrating a carbon penalty to a constrained mean-variance optimization framework. We resort to direct and indirect emissions, split between Scopes 1–2 and Scope 3, across geographical zones (Europe and US) and data providers (Refinitiv and Carbon4 Finance). Our results show that it is possible to cut emission intensities in half at least with virtually no loss in Sharpe ratio for reasonable levels of the carbon constraint. These results are valid across various choices of risk aversions, and irrespective of emissions data provider. For a sustainability-aware investor, these low-carbon portfolios are associated to a higher level of welfare. We find that the corresponding allocations are shifted towards assets with higher returns while keeping the portfolio's volatility unchanged. Our results add to the literature contending that sustainable investing is not costly.

Keywords: Sustainable investing; Scope 3 emissions; Portfolio footprint; Impact investing; Environmental finance (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:115:y:2022:i:c:s0264999322001973

DOI: 10.1016/j.econmod.2022.105951

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