@article {Bressanjpm.2022.1.394, author = {Giacomo Bressan and Irene Monasterolo and Stefano Battiston}, title = {Sustainable Investing and Climate Transition Risk: A Portfolio Rebalancing Approach}, elocation-id = {jpm.2022.1.394}, year = {2022}, doi = {10.3905/jpm.2022.1.394}, publisher = {Institutional Investor Journals Umbrella}, abstract = {The authors study how greenness can be combined with other investment criteria to construct sets of corporate bond portfolios with decreasing exposure to climate transition risk. They apply the methodology to the European Central Bank{\textquoteright}s asset purchase program. They define a weaker market neutrality principle as investing proportionally to the bond 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 relationship between bonds{\textquoteright} rebalancing and issuers{\textquoteright} 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 analyze 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.}, issn = {0095-4918}, URL = {https://jpm.pm-research.com/content/early/2022/09/16/jpm.2022.1.394}, eprint = {https://jpm.pm-research.com/content/early/2022/09/16/jpm.2022.1.394.full.pdf}, journal = {The Journal of Portfolio Management} }