Fighting climate change as a global equity investor

Benoît Mercereau (), Guillaume Neveux, João Paulo C. C. Sertã, Benoît Marechal and Gianluca Tonolo
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Benoît Mercereau: Arvella Investments
Guillaume Neveux: I Care & Consult
João Paulo C. C. Sertã: Arvella Investments
Benoît Marechal: I Care & Consult
Gianluca Tonolo: I Care & Consult

Journal of Asset Management, 2020, vol. 21, issue 1, No 6, 70-83

Abstract: Abstract How could global equity investors fight climate change and what are the implications for their portfolios? We construct a new climate alignment database to address these questions. Investors can fight climate change in two ways: by funding firms aligned with a sub 2 °C scenario; and by engaging firms to lower their climate footprint. Investing in climate-aligned firms does not raise portfolio risk much. For example, a simple 1.5 °C equity portfolio is only 0.9 pp more volatile than global equities. The reason is simple: most sectors have climate-aligned firms. Hence, “low-temperature” portfolios can diversify across sectors. Engagement has huge potential. All firms adopting their sector’s existing best practices may bring the world economy back on a 2 °C trajectory. Moreover, engagement does increase portfolio risk, and may even boost returns. Overall, investors can fight climate change without foregoing returns or increasing portfolio risk substantially.

Keywords: Climate change; ESG; Global equities (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1057/s41260-020-00150-9

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