IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v115y2022ics0264999322001973.html

Scopes of carbon emissions and their impact on green portfolios

Author

Listed:
  • Anquetin, Théophile
  • Coqueret, Guillaume
  • Tavin, Bertrand
  • Welgryn, Lou

Abstract

The aim of this paper is to study the performance of carbon-based portfolios when all emissions scopes are accounted for. We formalize low-carbon mean-variance portfolio strategies by integrating a carbon penalty to a constrained mean-variance optimization framework. We resort to direct and indirect emissions, split between Scopes 1–2 and Scope 3, across geographical zones (Europe and US) and data providers (Refinitiv and Carbon4 Finance). Our results show that it is possible to cut emission intensities in half at least with virtually no loss in Sharpe ratio for reasonable levels of the carbon constraint. These results are valid across various choices of risk aversions, and irrespective of emissions data provider. For a sustainability-aware investor, these low-carbon portfolios are associated to a higher level of welfare. We find that the corresponding allocations are shifted towards assets with higher returns while keeping the portfolio's volatility unchanged. Our results add to the literature contending that sustainable investing is not costly.

Suggested Citation

  • Anquetin, Théophile & Coqueret, Guillaume & Tavin, Bertrand & Welgryn, Lou, 2022. "Scopes of carbon emissions and their impact on green portfolios," Economic Modelling, Elsevier, vol. 115(C).
    • Handle: RePEc:eee:ecmode:v:115:y:2022:i:c:s0264999322001973
    DOI: 10.1016/j.econmod.2022.105951
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999322001973
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2022.105951?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Manuel Coeslier & Céline Louche & Jean-François Hétet, 2016. "On the relevance of low-carbon stock indices to tackle climate change," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 6(4), pages 247-262, October.
    2. Eric Jondeau & Benoit Mojon & Luiz Awazu Pereira da Silva, 2021. "Building benchmarks portfolios with decreasing carbon footprints," BIS Working Papers 985, Bank for International Settlements.
    3. Philip Roundy & Hunter Holzhauer & Ye Dai, 2017. "Finance or philanthropy? Exploring the motivations and criteria of impact investors," Social Responsibility Journal, Emerald Group Publishing Limited, vol. 13(3), pages 491-512, August.
    4. David Stern & Robert Kaufmann, 2014. "Anthropogenic and natural causes of climate change," Climatic Change, Springer, vol. 122(1), pages 257-269, January.
    5. Ang, Andrew & Gorovyy, Sergiy & van Inwegen, Gregory B., 2011. "Hedge fund leverage," Journal of Financial Economics, Elsevier, vol. 102(1), pages 102-126, October.
    6. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
    7. Samuel M. Hartzmark & Abigail B. Sussman, 2019. "Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows," Journal of Finance, American Finance Association, vol. 74(6), pages 2789-2837, December.
    8. Ledoit, Oliver & Wolf, Michael, 2008. "Robust performance hypothesis testing with the Sharpe ratio," Journal of Empirical Finance, Elsevier, vol. 15(5), pages 850-859, December.
    9. Auke Plantinga & Bert Scholtens, 2021. "The financial impact of fossil fuel divestment," Climate Policy, Taylor & Francis Journals, vol. 21(1), pages 107-119, January.
    10. Azar, José & Duro, Miguel & Kadach, Igor & Ormazabal, Gaizka, 2021. "The Big Three and corporate carbon emissions around the world," Journal of Financial Economics, Elsevier, vol. 142(2), pages 674-696.
    11. Christidou, Maria & Panagiotidis, Theodore & Sharma, Abhijit, 2013. "On the stationarity of per capita carbon dioxide emissions over a century," Economic Modelling, Elsevier, vol. 33(C), pages 918-925.
    12. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2022. "Dissecting green returns," Journal of Financial Economics, Elsevier, vol. 146(2), pages 403-424.
    13. Irene Bengo & Alice Borrello & Veronica Chiodo, 2021. "Preserving the Integrity of Social Impact Investing: Towards a Distinctive Implementation Strategy," Sustainability, MDPI, vol. 13(5), pages 1-19, March.
    14. Radonjič, Gregor & Tompa, Saša, 2018. "Carbon footprint calculation in telecommunications companies – The importance and relevance of scope 3 greenhouse gases emissions," Renewable and Sustainable Energy Reviews, Elsevier, vol. 98(C), pages 361-375.
    15. Nguyen, Quyen & Diaz-Rainey, Ivan & Kuruppuarachchi, Duminda, 2021. "Predicting corporate carbon footprints for climate finance risk analyses: A machine learning approach," Energy Economics, Elsevier, vol. 95(C).
    16. Ledoit, Olivier & Wolf, Michael, 2004. "A well-conditioned estimator for large-dimensional covariance matrices," Journal of Multivariate Analysis, Elsevier, vol. 88(2), pages 365-411, February.
    17. Ravi Jagannathan & Tongshu Ma, 2003. "Risk Reduction in Large Portfolios: Why Imposing the Wrong Constraints Helps," Journal of Finance, American Finance Association, vol. 58(4), pages 1651-1683, August.
    18. Guo, Xiaozhu & Liang, Chao & Umar, Muhammad & Mirza, Nawazish, 2022. "The impact of fossil fuel divestments and energy transitions on mutual funds performance," Technological Forecasting and Social Change, Elsevier, vol. 176(C).
    19. William N. Goetzmann & Alok Kumar, 2008. "Equity Portfolio Diversification," Review of Finance, European Finance Association, vol. 12(3), pages 433-463.
    20. Pedersen, Lasse Heje & Fitzgibbons, Shaun & Pomorski, Lukasz, 2021. "Responsible investing: The ESG-efficient frontier," Journal of Financial Economics, Elsevier, vol. 142(2), pages 572-597.
    21. Nyambuu, Unurjargal & Semmler, Willi, 2020. "Climate change and the transition to a low carbon economy – Carbon targets and the carbon budget," Economic Modelling, Elsevier, vol. 84(C), pages 367-376.
    22. Block, Joern H. & Hirschmann, Mirko & Fisch, Christian, 2021. "Which criteria matter when impact investors screen social enterprises?," Journal of Corporate Finance, Elsevier, vol. 66(C).
    23. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2021. "Sustainable investing in equilibrium," Journal of Financial Economics, Elsevier, vol. 142(2), pages 550-571.
    24. Lagerkvist, C.J. & Edenbrandt, A.K. & Tibbelin, I. & Wahlstedt, Y., 2020. "Preferences for sustainable and responsible equity funds - A choice experiment with Swedish private investors," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).
    25. repec:bla:jfinan:v:58:y:2003:i:4:p:1651-1684 is not listed on IDEAS
    26. Avramov, Doron & Cheng, Si & Lioui, Abraham & Tarelli, Andrea, 2022. "Sustainable investing with ESG rating uncertainty," Journal of Financial Economics, Elsevier, vol. 145(2), pages 642-664.
    27. Bernhard Goldhammer & Christian Busse & Timo Busch, 2017. "Estimating Corporate Carbon Footprints with Externally Available Data," Journal of Industrial Ecology, Yale University, vol. 21(5), pages 1165-1179, October.
    28. David Mytton, 2020. "Hiding greenhouse gas emissions in the cloud," Nature Climate Change, Nature, vol. 10(8), pages 701-701, August.
    29. Philippe van der Beck, 2021. "Flow-Driven ESG Returns," Swiss Finance Institute Research Paper Series 21-71, Swiss Finance Institute.
    30. Plambeck, Erica L., 2012. "Reducing greenhouse gas emissions through operations and supply chain management," Energy Economics, Elsevier, vol. 34(S1), pages 64-74.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Liu, Yong-Jun & Yang, Guo-Sen & Zhang, Wei-Guo, 2024. "A novel regret-rejoice cross-efficiency approach for energy stock portfolio optimization," Omega, Elsevier, vol. 126(C).
    2. Miriam Borchardt & Giancarlo Pereira & Gabriel Milan & Elisabeth Pereira & Leandro Lima & Renata Bianchi & Annibal Scavarda do Carmo, 2025. "Are Sustainable Supply Chains Managing Scope 3 Emissions? A Systematic Literature Review," Sustainability, MDPI, vol. 17(13), pages 1-22, July.
    3. Benchora, Inessa & Leroy, Aurélien & Raffestin, Louis, 2025. "Is monetary policy transmission green?," Economic Modelling, Elsevier, vol. 144(C).
    4. Katia Colaneri & Alessandra Cretarola & Edoardo Lombardo & Daniele Mancinelli, 2025. "Design and hedging of unit linked life insurance with environmental factors," Papers 2509.05676, arXiv.org, revised Sep 2025.
    5. Xu, Danyang & Corbet, Shaen & Lang, Chunlin & Hu, Yang, 2024. "Understanding dynamic return connectedness and portfolio strategies among international sustainable exchange-traded funds," Economic Modelling, Elsevier, vol. 141(C).
    6. Sukono & Riza Andrian Ibrahim & Adhitya Ronnie Effendie & Moch Panji Agung Saputra & Igif Gimin Prihanto & Astrid Sulistya Azahra, 2025. "Multi-Objective Optimization with a Closed-Form Solution for Capital Allocation in Environmental Energy Stock Portfolio," Mathematics, MDPI, vol. 13(17), pages 1-20, September.
    7. Lei, Ni & Miao, Qin & Yao, Xin, 2023. "Does the implementation of green credit policy improve the ESG performance of enterprises? Evidence from a quasi-natural experiment in China," Economic Modelling, Elsevier, vol. 127(C).
    8. Katia Colaneri & Federico D'Amario & Daniele Mancinelli, 2025. "Carbon-Penalised Portfolio Insurance Strategies in a Stochastic Factor Model with Partial Information," Papers 2511.19186, arXiv.org.
    9. Du, Qianqian & Su, Wanxuan & Liang, Dawei & Wang, Luying, 2023. "How does green preference impact sustainability-based investment strategy? Evidence from the Chinese stock market," Economic Modelling, Elsevier, vol. 124(C).
    10. Wei, Xiahai & Jiang, Feng & Chen, Yu & Hua, Wenhui, 2024. "Towards green development: The role of intelligent manufacturing in promoting corporate environmental performance," Energy Economics, Elsevier, vol. 131(C).
    11. Wu, Wei & Yang, Shuang & Li, Ao & Chen, Yu & Chen, Sicen, 2024. "Does interest rate liberalization affect corporate green investment?," Energy Economics, Elsevier, vol. 131(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Théophile Anquetin & Guillaume Coqueret & Bertrand Tavin & Lou Welgryn, 2022. "Scopes of carbon emissions and their impact on green portfolios," Post-Print hal-04144612, HAL.
    2. Cortez, Maria Céu & Andrade, Nuno & Silva, Florinda, 2022. "The environmental and financial performance of green energy investments: European evidence," Ecological Economics, Elsevier, vol. 197(C).
    3. Berle, Erika & He, Wanwei (Angela) & Ødegaard, Bernt Arne, 2025. "The stock market and corporate consequences of ethical exclusions by the world’s largest fund," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 102(C).
    4. Alves, Rómulo & Krüger, Philipp & van Dijk, Mathijs, 2025. "Drawing up the bill: Are ESG ratings related to stock returns around the world?," Journal of Corporate Finance, Elsevier, vol. 93(C).
    5. Muck, Matthias & Schmidl, Thomas, 2024. "Comparing ESG score weighting approaches and stock performance differentiation," Finance Research Letters, Elsevier, vol. 67(PB).
    6. Rojo-Suárez, Javier & Alonso-Conde, Ana B., 2024. "Have shifts in investor tastes led the market portfolio to capture ESG preferences?," International Review of Financial Analysis, Elsevier, vol. 91(C).
    7. Ciciretti, Rocco & Dalò, Ambrogio & Dam, Lammertjan, 2023. "The contributions of betas versus characteristics to the ESG premium," Journal of Empirical Finance, Elsevier, vol. 71(C), pages 104-124.
    8. Horn, Matthias & Oehler, Andreas, 2024. "Constructing stock portfolios by sorting on ESG ratings: Does the rating provider matter?," International Review of Financial Analysis, Elsevier, vol. 96(PA).
    9. Quaye, Enoch & Tunaru, Diana & Tunaru, Radu, 2024. "Green-adjusted share prices: A comparison between standard investors and investors with green preferences," Journal of Financial Stability, Elsevier, vol. 74(C).
    10. Rudkin, Wanling & Cai, Charlie X. & Zhou, You, 2025. "Can we enhance investment with ESG?," International Review of Financial Analysis, Elsevier, vol. 97(C).
    11. Liu, Dianhao & Zhou, Jun, 2025. "Do ESG rating changes matter? Evidence from Chinese stock market," Global Finance Journal, Elsevier, vol. 67(C).
    12. Luo, Qiling & Xue, Minggao & Xiong, Yeqin & Ge, Xiaowen, 2024. "The backfire of mutual funds balancing financial objectives in ESG investments: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    13. Ferriani, Fabrizio, 2023. "Issuing bonds during the Covid-19 pandemic: Was there an ESG premium?," International Review of Financial Analysis, Elsevier, vol. 88(C).
    14. Aineas Mallios & Taylan Mavruk, 2025. "Do ESG funds engage in portfolio pumping to gain higher flows? An application of Benford's Law," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 30(2), pages 1540-1563, April.
    15. Dunbar, Kwamie & Treku, Daniel & Sarnie, Robert & Hoover, Jack, 2023. "What does ESG risk premia tell us about mutual fund sustainability levels: A difference-in-differences analysis," Finance Research Letters, Elsevier, vol. 57(C).
    16. Ammann, Manuel & Coqueret, Guillaume & Schade, Jan-Philip, 2016. "Characteristics-based portfolio choice with leverage constraints," Journal of Banking & Finance, Elsevier, vol. 70(C), pages 23-37.
    17. Li, Qianqian & Watts, Edward M. & Zhu, Christina, 2024. "Retail investors and ESG news," Journal of Accounting and Economics, Elsevier, vol. 78(2).
    18. Lars Hornuf & Gül Yüksel, 2022. "The Performance of Socially Responsible Investments: A Meta-Analysis," CESifo Working Paper Series 9724, CESifo.
    19. Nakagawa, Kei & Morita, Keisuke & Sakemoto, Ryuta, 2025. "Stochastic ESG scores and nonpecuniary ESG preferences: An extension to CAPM," Finance Research Letters, Elsevier, vol. 79(C).
    20. Lioui, Abraham & Tarelli, Andrea, 2022. "Chasing the ESG factor," Journal of Banking & Finance, Elsevier, vol. 139(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:115:y:2022:i:c:s0264999322001973. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.