The countdown to carbon neutrality: Implications for passive investors

Nicola Carta, Matteo Carta and Ugo Rigoni

Economics Letters, 2024, vol. 244, issue C

Abstract: In 2019 the European Union (EU) Climate Benchmarks Regulation established a set of standardized emission reduction criteria for financial benchmarks. This study examines the risk-adjusted performance of equity exchange-traded funds (ETFs) tracking EU Climate Transition Benchmarks (CTBs) and EU Paris-Aligned Benchmarks (PABs). Our findings reveal that, after the implementation of the regulation, equity CTB ETFs have exhibited no significant risk-adjusted performance difference compared to their non-sustainable twin ETFs. Conversely, equity PAB ETFs, which adhere to more stringent environmental standards, have underperformed their non-sustainable counterparts. Our results suggest that stringent emission reduction objectives have a negative effect on investors’ returns.

Keywords: ETF; Climate benchmark; Carbon neutrality; Paris-aligned; Sustainability; Market return (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 G18 G23 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:244:y:2024:i:c:s0165176524005081

DOI: 10.1016/j.econlet.2024.112024

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