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Fighting climate change as a global equity investor

Author

Listed:
  • Benoît Mercereau

    (Arvella Investments)

  • Guillaume Neveux

    (I Care & Consult)

  • João Paulo C. C. Sertã

    (Arvella Investments)

  • Benoît Marechal

    (I Care & Consult)

  • Gianluca Tonolo

    (I Care & Consult)

Abstract

How could global equity investors fight climate change and what are the implications for their portfolios? We construct a new climate alignment database to address these questions. Investors can fight climate change in two ways: by funding firms aligned with a sub 2 °C scenario; and by engaging firms to lower their climate footprint. Investing in climate-aligned firms does not raise portfolio risk much. For example, a simple 1.5 °C equity portfolio is only 0.9 pp more volatile than global equities. The reason is simple: most sectors have climate-aligned firms. Hence, “low-temperature” portfolios can diversify across sectors. Engagement has huge potential. All firms adopting their sector’s existing best practices may bring the world economy back on a 2 °C trajectory. Moreover, engagement does increase portfolio risk, and may even boost returns. Overall, investors can fight climate change without foregoing returns or increasing portfolio risk substantially.

Suggested Citation

  • Benoît Mercereau & Guillaume Neveux & João Paulo C. C. Sertã & Benoît Marechal & Gianluca Tonolo, 2020. "Fighting climate change as a global equity investor," Journal of Asset Management, Palgrave Macmillan, vol. 21(1), pages 70-83, February.
    • Handle: RePEc:pal:assmgt:v:21:y:2020:i:1:d:10.1057_s41260-020-00150-9
    DOI: 10.1057/s41260-020-00150-9
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    References listed on IDEAS

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    1. Mark P. Sharfman & Chitru S. Fernando, 2008. "Environmental risk management and the cost of capital," Strategic Management Journal, Wiley Blackwell, vol. 29(6), pages 569-592, June.
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    4. Del Guercio, Diane & Seery, Laura & Woidtke, Tracie, 2008. "Do boards pay attention when institutional investor activists "just vote no"?," Journal of Financial Economics, Elsevier, vol. 90(1), pages 84-103, October.
    5. Thomas E. Schneider, 2011. "Is Environmental Performance a Determinant of Bond Pricing? Evidence from the U.S. Pulp and Paper and Chemical Industries," Contemporary Accounting Research, John Wiley & Sons, vol. 28(5), pages 1537-1561, December.
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    Cited by:

    1. Jonas Zink, 2024. "Which investors support the transition toward a low-carbon economy? Exit and Voice in mutual funds," Journal of Asset Management, Palgrave Macmillan, vol. 25(2), pages 147-161, March.

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