TY - JOUR T1 - Practical Applications of Decarbonization Factors JF - Practical Applications DO - 10.3905/pa.2022.pa523 SP - pa.2022.pa523 AU - Alexander Cheema-Fox AU - Bridget Realmuto LaPerla AU - George Serafeim AU - David Turkington AU - Hui (Stacie) Wang Y1 - 2022/11/16 UR - https://pm-research.com/content/early/2022/11/13/pa.2022.pa523.abstract N2 - 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. ER -