By Alexander Cheema-Fox, George Serafeim and Hui (Stacie) Wang.
Institutions have decarbonized since 2019: we break down the where and how.
2015 Paris Agreement marked a milestone in that all nations agreed to work together to tackle climate. Responding to this changing landscape and taxonomy in climate change, investors are increasingly paying attention to the carbon exposure of their portfolios. Fast track to 2021, almost six years later, we ask: where are we standing now? Have institutional investor portfolios achieved lower carbon exposures? We develop a coherent framework to measure decarbonization within portfolios and decompose these changes in carbon exposure into distinct components mapping to company behavior, investor behavior, and relative price effects – and find that each component matters in different contexts. Regional and sectoral differences are also explored.