PT - JOURNAL ARTICLE AU - Bill Hao AU - Aye M. Soe AU - Kelly Tang TI - Carbon Risk Integration With Factors AID - 10.3905/jii.2018.1.061 DP - 2018 Aug 07 TA - The Journal of Index Investing PG - jii.2018.1.061 4099 - https://pm-research.com/content/early/2018/08/07/jii.2018.1.061.short 4100 - https://pm-research.com/content/early/2018/08/07/jii.2018.1.061.full AB - Integration of carbon risks into the investment process requires careful analysis of risk-return characteristics and factor exposures of resulting carbon efficient portfolios. In this article, we propose a stylized framework to integrate traditional style factors with carbon efficient portfolios for both U.S and developed Europe markets. The results show that although carbon efficient factor portfolios do achieve the objective of lowering carbon intensity, they generally have lower risk-adjusted returns than the pure factor portfolios. In addition, carbon efficient factor portfolios have lower exposure to the targeted factors, and the reductions in factor exposure are statistically significant.