Net-Zero Carbon Portfolio Alignment

Patrick Bolton, Marcin Kacperczyk, Frédéric Samama

2022 | Academic | Climate, Net-Zero, Portfolio Construction

We outline a simple and robust methodology to align portfolios with a science-based, carbon budget consistent with maintaining a temperature rise below 1.5oC with 83% probability. We show how to keep the tracking error at a negligible level. This approach works for both passive and active managers. It also establishes an exit roadmap for carbon-intensive corporates, thereby generating a form of competition to decarbonize within each sector.