RT Journal Article
SR Electronic
T1 Sustainable investing and climate transition risk: a portfolio rebalancing approach
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP jpm.2022.1.394
DO 10.3905/jpm.2022.1.394
A1 Giacomo Bressan
A1 Irene Monasterolo
A1 Stefano Battiston
YR 2022
UL https://pm-research.com/content/early/2022/07/14/jpm.2022.1.394.abstract
AB The authors study how greenness can be combined with other investment criteria to construct sets of corporate bonds portfolios with decreasing exposure to climate transition risk. They apply the methodology to the European Central Bank’s asset purchase program. They define a weaker market neutrality principle as investing proportionally to the bonds’ amount outstanding within Climate Policy Relevant Sectors. The portfolio rebalancing leads to a 10% reduction of exposure to climate transition risk. Then, the authors study the relation between bonds’ rebalancing and issuers’ Environmental, Social and Governance (ESG) characteristics and Greenhouse Gas (GHG) emissions. Bonds issued by firms with low (high) ESG risk and GHG emissions are more likely to be bought (sold) in the rebalancing. Finally, they analyse implications of portfolio rebalancing on financial markets finding that changes in yields would be limited to less than 80 basis points on individual bonds. The approach can contribute to inform climate-aware portfolio rebalancing and sustainable investment strategies.