Beyond Divestment: Using Low Carbon Indexes
categories: Indexes, ESG Products & Services, Americas, EMEAI, Investing (Investment Management), Responsible Investing, Asia Pacific, Asset Owners, Equities, Australia, Research Paper, Asset Managers (Quant or Fundamental), MENOU Veronique, LEE Linda-Eling, BRIAND Remy
Winner of the 2015 IRRC Institute Investor Research Award for best practitioner paper.
Approaches based on divesting certain sectors effectively can help asset owners communicate their concerns about the risks of climate change to stakeholders. However, they ignore short-term benchmark risk. Further, a focus on divesting reserves disregards fixed assets that are at risk of losing value because they depend on burning fossil fuel reserves. This paper provides a framework for evaluating ways to reduce two dimensions of carbon exposure - current carbon emissions and potential future emissions embedded in fossil fuel reserves - and explores new and more financially viable ways of managing carbon risk.
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Research Spotlight Beyond Divestment Using Low Carbon Indexes 2015