Portfolio decarbonisation strategies: questions and suggestions

Financial intermediaries are integrating climate in their portfolio management and lending strategies. A shared objective is to properly manage the related risks. Many are also driven by the desire to do their part to help the transition towards a low-carbon economy. In their efforts to pursue these two objectives, many intermediaries have been pledging to reduce the carbon emissions financed by the assets side of their balance sheets, and to achieve net zero financed emissions by 2050, possibly meeting intermediate quantitative targets. Divesting from carbon-intensive firms and investing in low-carbon ones should reduce transition risk (the first objective), and should make access to finance more difficult for high emitters, pushing them to curtail investment in polluting technologies (the second objective). This paper argues that this strategy, apparently simple and sensible, hides numerous complexities whose implications have not yet been fully fleshed out, and that some of its consequences might be undesired. In a nutshell, in spite of substantial progress in recent years, more research is necessary to shed light on how the financial sector can effectively pursue the above objectives.