Publication / 01 Oct 2015

Carbon Efficiency: A Strategic Look

This paper looks at the case for carbon efficient investment and analyzes some passive investment strategy solutions.

As concerns over climate change continue to grow, carbon asset risk is becoming increasingly important, especially for long-term investors. World leaders are weighing in on fossil fuel divestments, and the UN warned last year that ignoring these risks could be seen as a breach of the investors’ fiduciary duty to their beneficial owners.

With institutional investors like pension funds, insurance companies, and sovereign wealth funds proactively looking to hedge climate risk, the demand for low-carbon investment options is surging, and the market has seen a slew of new index-linked products catering to this need. Investors can choose strategies based on a number of parameters, such as the level of carbon reduction they desire, the degree of benchmark tracking, portfolio returns and risks, and other specific indicators.

In this paper we look at the case for carbon efficient investment and analyze a few passive solutions that aim to provide either divestment from carbon or beta exposure with a lower carbon footprint.

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