It is generally accepted that the world's climate is changing due to rising man made emissions of greenhouse gases (GHGs).
Many investors are looking to mitigate the risk of climate change, including the transition to a low-carbon economy, to their portfolios. The challenge is how can carbon risk be managed without compromising long-term performance.
Many existing solutions take the straight-forward approach of offering strategies that overweight the stocks of companies that are less dependent on fossil fuels relative to higher carbon-emitting peers. We believe this approach has some important limitations.