Do low-carbon investments in emerging economies pay off? Evidence from the Brazilian stock market

Felipe Arias Fogliano de Souza Cunha, Erick Meira, Renato J. Orsato, Marcelo Klotzle and André F.P. Lucena

International Review of Financial Analysis, 2021, vol. 74, issue C

Abstract: Climate change has created both challenges and opportunities for investors worldwide. Investing in carbon-efficient assets, for instance, may reduce investors' climate risks while contributing to global efforts for climate change mitigation. Investors need updated and robust information on the financial performance of low-carbon investments, especially in emerging markets, where climate finance initiatives are still scattered. In this work, we provide a first insight into the financial performance of a portfolio of shares from Brazilian carbon-efficient companies. To that end, we use as reference the Carbon Efficient Index (ICO2) and assess its financial performance from 2010 to 2019 through the lens of several classic and modern portfolio metrics. We find that the index outperformed both the Brazilian market benchmark and the country's broad sustainability index, and provided competitive risk-adjusted returns compared with other sectorial indices. The results thus indicate that investing in carbon-efficient companies in Brazil has so far positively contributed to portfolio performance while offering investors an opportunity to reduce climate risk exposure in stock markets.

Keywords: Climate finance; Low-carbon investments; Carbon-efficient indices; Emerging markets; Sustainability (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:74:y:2021:i:c:s1057521921000430

DOI: 10.1016/j.irfa.2021.101700

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