Reconciling Portfolio Diversification with a Shrinking Carbon Footprint

By Patrick Bolton, Marcin Kacperczyk, Henrik Lorin Rasmussen and Frédéric Samama

“Reconciling Portfolio Diversification with a Shrinking Carbon Footprint” presents a comprehensive analysis of net-zero-aligned portfolios (NZPs) and their implications for institutional investors aiming to mitigate carbon transition risk while maintaining effective diversification. This paper emphasizes the need for balancing environmental objectives with portfolio stability, focusing on a methodology that ensures alignment with market benchmarks.

What Are Net-Zero-Aligned Portfolios?

NZPs are investment portfolios that aim to reduce their carbon footprint over time, in line with the prescribed, science-based Intergovernmental Panel on Climate Change (IPCC) decarbonization pathway for the global economy. This alignment serves as a hedge against potential regulatory shifts targeting emission reductions.

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