RT Journal Article
SR Electronic
T1 Carbon Risk Integration With Factors
JF The Journal of Index Investing
FD Institutional Investor Journals
SP jii.2018.1.061
DO 10.3905/jii.2018.1.061
A1 Bill Hao
A1 Aye M. Soe
A1 Kelly Tang
YR 2018
UL https://pm-research.com/content/early/2018/08/07/jii.2018.1.061.abstract
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.