Climate Investing

2Looking Forward with Historical Carbon Data

Increasingly many allocators are interested in computing the carbon footprint of their portfolios. The usual way of doing this relies on historical greenhouse gas emissions data, which typically lag by one to two years relative to when investment portfolios are built. In this chapter, we show that historical emissions data are useful despite this significant lag. First, we use point-in-time data to show that the relative greenness of portfolio companies has remained very stable over time. Perhaps unsurprisingly, companies that were historically green (or brown) remain green (or brown) today and for several years to come, overall and compared to same-sector peers. Second, and more surprisingly, we show that the portfolio carbon footprint measured using historical data is remarkably informative about the current portfolio carbon footprint (using current or same-fiscal-year emissions that the portfolio finances). We believe this observation should give allocators comfort that historical carbon data still provides important insights into their portfolio’s current, or even future, climate exposure.

2.1. Introduction

Climate-aware investing is one of the most important recent trends in asset management. In a survey of institutional investors, Krueger et al. (2020) found that 93% of respondents had incorporated climate risk into their investment process. Asset owners who publicly committed to net zero targets jointly manage over $10 trillion ...