Risks and benefits of low-carbon investing: a new factor?

The climate transition increasingly dominates the investment landscape as fund managers focus on sustainability themes. Low-carbon investing is an early approach that addresses climate risks in a systematic way.

Implementation matters

In simple terms, a low-carbon investment strategy involves penalising companies with high emissions and favouring those with low emissions. Last year provided a good example of how things can go wrong with such a portfolio.

Our analysis shows that the way such strategies are implemented can make a huge difference – in fact, an alternative low-carbon portfolio formed on a sector-neutral basis performed exceptionally well in 2022.

In this piece we investigate the risks and returns of low-carbon investing. Looking at the evidence, we try to answer an important question: is low carbon a new equity factor?  

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