TY - JOUR T1 - Carbon Risk Integration with Factors JF - The Journal of Index Investing SP - 53 LP - 65 DO - 10.3905/jii.2018.1.061 VL - 9 IS - 2 AU - Bill Hao AU - Aye M. Soe AU - Kelly Tang Y1 - 2018/08/31 UR - https://pm-research.com/content/9/2/53.abstract N2 - 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.TOPICS: Analysis of individual factors/risk premia, ESG investing, developed ER -