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- Title
Decomposition of Greenhouse Gas Emissions Associated with an Equity Portfolio.
- Authors
Bouchet, Vincent
- Abstract
While methodologies to measure the alignment of a financial portfolio with climate objectives develop rapidly, historical and cross-sectional analysis of greenhouse gas emissions associated with a portfolio has received little attention. Understanding the factors that influence these emissions is essential to identifying the levers of a portfolio manager to set ambitious but realistic reduction targets and avoid the phenomenon of portfolio greenwashing. This article introduces a decomposition method inspired by those used in environmental economics that helps to disentangle five factors that influence portfolio emissions. To illustrate the model, the author analyzes a climate impact index and its benchmark over the period 2014-2019. The author shows that the index reaches a similar decarbonization rate (-35%) to its benchmark by selecting the least emissions-intensive companies within the sectors and the companies that structurally reduce their emissions intensity. In contrast, the benchmark achieves this decarbonization mainly through sector allocation, the most emissive sectors being less represented.
- Publication
Journal of Impact & ESG Investing, 2023, Vol 4, Issue 2, p35
- ISSN
2693-1982
- Publication type
Academic Journal
- DOI
10.3905/jesg.2023.1.085