Different climate risk metrics lead to portfolios with different carbon and risk–return profiles. Analyzing the merits and applicability of various climate data can help investors manage climate risk and improve risk-adjusted returns.
We analyze how the use of different climate risk measures leads to different portfolio carbon outcomes and risk-adjusted returns. Our findings are synthesized in a rules-based investment framework, which selects a different type of climate metric across industries and weighs industries in the portfolio based on the variability of carbon outcomes among firms within each industry. We conclude that analyzing the merits and applicability of various climate data can help investors manage climate risk while increasing risk-adjusted returns.
Read the Complete Article in Financial Analysts Journal
Financial Analysts Journal
CFA Institute Premium Member Content
This is available to the following CFA Institute membership classes: CFA charterholders, Professionals, and Affiliates.