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Published in:
2021 | OriginalPaper | Chapter
2. A Portfolio Approach to Hedging Climate Risk
Author : Marc Roston
Published in: Settling Climate Accounts
Publisher: Springer International Publishing
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Abstract
This chapter describes methods for investors to integrate climate-related data into their portfolios through risk management techniques rather than by seeking outperformance. We demonstrate this risk management approach using the standard tools of modern portfolio theory and quantitative portfolio construction familiar to many investors. We argue that all investors would be well served by taking at least some steps down this path, whether by marginally modifying their exposures, or wholesale shifts in their portfolio benchmarks. Furthermore, some investors may choose to use more sophisticated long/short strategies to dramatically reduce their carbon exposures across entire investment portfolios.