PT  - JOURNAL ARTICLE
AU  - Alexander Cheema-Fox
AU  - Bridget Realmuto LaPerla
AU  - George Serafeim
AU  - David Turkington
AU  - Hui (Stacie) Wang
TI  - Practical Applications of Decarbonization Factors
AID  - 10.3905/pa.2022.pa523
DP  - 2022 Nov 16
TA  - Practical Applications
PG  - pa.2022.pa523
4099  - https://pm-research.com/content/early/2022/11/13/pa.2022.pa523.short
4100  - https://pm-research.com/content/early/2022/11/13/pa.2022.pa523.full
AB  - In Decarbonization Factors, from the the Fall 2021 issue of The Journal of Impact and ESG Investing, Alexander Cheema-Fox, Bridget Realmuto LaPerla, David Turkington, and Hui (Stacie) Wang, all of State Street Associates, and George Serafeim of Harvard University illustrate the financial benefits of decarbonizing a portfolio. They create and examine the performance of six decarbonization strategies in the United States and Europe. Each portfolio takes long positions in companies with low carbon emissions and short positions in companies with high carbon emissions. Some approaches are more limiting than others in terms of portfolio construction; for example, sorting all companies within the market by carbon emissions is less stringent than sorting them within industries and creating an industry-neutral portfolio. Less restrictive approaches allow for more decarbonization, which is associated with higher alphas. However, this is true only on average, and switching strategies by following institutional flows into the various decarbonization factors can increase portfolio performance.