Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • 2019
  • Working Paper
  • HBS Working Paper Series

Decarbonization Factors

By: Alex Cheema-Fox, Bridget LaPerla, George Serafeim, David Turkington and Hui (Stacie) Wang
  • Format:Print
  • | Language:English
  • | Pages:48
ShareBar

Abstract

In the face of accelerating climate change, investors are making capital allocations seeking to decarbonize portfolios by reducing the carbon emissions of their holdings. To understand the performance of portfolio decarbonization strategies and investor behavior towards decarbonization, we construct decarbonization factors that go long low carbon intensity sectors, industries, or firms and short high carbon intensity. We consider several portfolio formation strategies and find strategies that lowered carbon emissions more aggressively performed better. Decarbonization factor returns are associated with contemporaneous institutional flows into the factors. Buying decarbonization factors when coincident flows are positive while selling when they are negative produces significantly positive alphas. Combining decarbonization factors that have positive contemporaneous flows would provide investors with significantly superior returns and continuous exposure to low carbon portfolios. The results are more pronounced in Europe relative to the United States. Our results suggest that institutional investor flows contain information about anticipated fundamentals related to climate change developments.

Keywords

ESG; Investment Management; Factor Investing; Investor Behavior; Climate Change; Environmental Sustainability; Investment; Management

Citation

Cheema-Fox, Alex, Bridget LaPerla, George Serafeim, David Turkington, and Hui (Stacie) Wang. "Decarbonization Factors." Harvard Business School Working Paper, No. 20-037, September 2019. (Revised November 2019.)
  • SSRN
  • Read Now

About The Author

George Serafeim

Accounting and Management
→More Publications

Related Work

    • Journal of Impact and ESG Investing

    Decarbonization Factors

    By: Alex Cheema-Fox, Bridget LaPerla, George Serafeim, David Turkington and Hui (Stacie) Wang
Related Work
  • Decarbonization Factors By: Alex Cheema-Fox, Bridget LaPerla, George Serafeim, David Turkington and Hui (Stacie) Wang
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College