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Net-Zero Alignment: Portfolio Construction Approaches for Investors

Post-COP26, the need to reach net-zero — that is, producing less carbon than we put into the air — is more compelling than ever. How can investors approach a net-zero pathway in their global equities portfolio? Creating a portfolio currently aligned with a 1.5- or 2-degree Celsius implied temperature rise would eliminate most of the global equities universe. We explore three portfolio-construction approaches that target reductions in carbon emissions over time.

The exhibit below illustrates the challenges in creating a global equities portfolio that is 1.5°C- or 2.0˚C-aligned from the outset.

Active Sector Weights in Hypothetical 1.5°C- or 2.0˚C-Aligned Portfolios

Relative to MSCI ACWI Index. As of Aug. 31, 2021. Source: MSCI


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