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On the relevance of low-carbon stock indices to tackle climate change

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  • Manuel Coeslier
  • Céline Louche
  • Jean-François Hétet

Abstract

In a context where the necessary transition to a climate-resilient economy creates financing needs as well as new and underestimated financial risks for investors, low-carbon or carbon-efficient financial indices represent a rapidly growing and promising instrument. By building and testing representative optimization methodologies for low-carbon stock indices, this study investigates their ability to both (i) allow investors to hedge against climate-related financial risks and (ii) promote companies with higher contribution to the energy transition. The analysis is based on a large European stock index for which we benefit from a complete set of bottom-up calculated environmental indicators, including indirect and avoided carbon emissions figures. The results indicate that mainstream low-carbon indices methodologies fail to address the challenges they are based on and call for further improvements in order to align diversified financial instruments with ambitious climate objectives.

Suggested Citation

  • Manuel Coeslier & Céline Louche & Jean-François Hétet, 2016. "On the relevance of low-carbon stock indices to tackle climate change," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 6(4), pages 247-262, October.
    • Handle: RePEc:taf:jsustf:v:6:y:2016:i:4:p:247-262
    DOI: 10.1080/20430795.2016.1223471
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    Cited by:

    1. Théophile Anquetin & Guillaume Coqueret & Bertrand Tavin & Lou Welgryn, 2022. "Scopes of carbon emissions and their impact on green portfolios," Post-Print hal-04144612, HAL.
    2. Cunha, Felipe Arias Fogliano de Souza & Meira, Erick & Orsato, Renato J. & Klotzle, Marcelo Cabus & Lucena, André F.P., 2021. "Do low-carbon investments in emerging economies pay off? Evidence from the Brazilian stock market," International Review of Financial Analysis, Elsevier, vol. 74(C).
    3. Anquetin, Théophile & Coqueret, Guillaume & Tavin, Bertrand & Welgryn, Lou, 2022. "Scopes of carbon emissions and their impact on green portfolios," Economic Modelling, Elsevier, vol. 115(C).

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