On the relevance of low-carbon stock indices to tackle climate change

Manuel Coeslier, Céline Louche () and Jean-François Hétet

Journal of Sustainable Finance & Investment, 2016, vol. 6, issue 4, 247-262

Abstract: In a context where the necessary transition to a climate-resilient economy creates financing needs as well as new and underestimated financial risks for investors, low-carbon or carbon-efficient financial indices represent a rapidly growing and promising instrument. By building and testing representative optimization methodologies for low-carbon stock indices, this study investigates their ability to both (i) allow investors to hedge against climate-related financial risks and (ii) promote companies with higher contribution to the energy transition. The analysis is based on a large European stock index for which we benefit from a complete set of bottom-up calculated environmental indicators, including indirect and avoided carbon emissions figures. The results indicate that mainstream low-carbon indices methodologies fail to address the challenges they are based on and call for further improvements in order to align diversified financial instruments with ambitious climate objectives.

Date: 2016
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DOI: 10.1080/20430795.2016.1223471

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