Helping to Green the Planet or Just Greening Your Portfolio?

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    Stockholm (NordSIP) – On June 14th, Philipp Krueger, Professor of Responsible Finance at the University of Geneva (GSEM, GFRI) and Senior Chair at the Swiss Finance Institute presented the paper “Decarbonizing Institutional Investor Portfolios: Helping to Green the Planet or Just Greening Your Portfolio?” at the Stockholm School of Economics’ Mistra Center for Sustainable Markets (Misum). The paper is co-authored with Vaska Atta-Darkua and Pedro Matos of the Darden School of Business at the University of Virginia, and Simon Glossner from the Board of Governors of the US Federal Reserve System.

    Philipp Krueger, Professor of Responsible Finance at the University of Geneva (GSEM, GFRI) and Senior Chair at the Swiss Finance Institute

    Misum is an interdisciplinary and multi-stakeholder research environment at the Stockholm School of Economics (SSE) that brings together scholars from different departments and centers at SSE and high-impact external institutions. Misum’s mission is to develop internationally recognised and cutting-edge research for diverse stakeholder groups on transitioning markets towards sustainable development.

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    The Research Question

    The authors distinguish “climate-conscious” institutional investors who are supporters of international investor-led climate-related initiatives (e.g., CDP, formerly The Carbon Disclosure Project), and those that do not, to consider whether these green investors are actively decarbonizing their equity portfolios and, if so, whether they are just “greening their portfolios”, or whether they are actually contributing to “greening the planet”.

    The hypothesis is that “climate-conscious” investors divest faster from companies with high emissions but could also engage more with companies on carbon issues than their institutional peers.

    “Divestment and engagement have different implications for firms’ carbon emissions. Divestment, absent any second-order effects, doesn’t necessarily reduce carbon emissions of companies but only makes the investor’s portfolio look greener. However, when emissions reductions are due to shareholder engagement, both the portfolio becomes greener and the emissions of the underlying firms decrease as well.”

    The study matches portfolio holdings data for thousands of institutional investors around the world from FactSet Ownership with emissions data from Trucost and data from the Emissions Database for Global Atmospheric Research (EDGAR). They begin by considering the differences between signatories to the Climate Disclosure Project (CDP).


    The authors find some evidence to support the idea that membership of the CDP is associated with greener portfolios, but the effects are weak and subtle, possibly due to heterogeneity among institutional investors. “CDP investors domiciled in jurisdictions with carbon emission schemes decarbonize portfolios at a sizable rate of 3 to 4 percentage points faster than other non-CDP institutional investors. In contrast, CDP investors outside an emissions scheme do not actively decarbonize relative to their other institutional peers,” the authors explain. (emphasis added)

    Given these results and consistent with the idea that membership of CDP might not be the strongest form of investor commitments to climate related causes, mainly because it is a disclosure oriented initiative, the authors consider another definition of “climate-conscious” institutional investors as those that have signed up to the Climate Action 100+ initiative launched in 2017. Instead of focusing on disclosures, this initiative focuses instead on requiring its members to engage with companies and push them to decrease their carbon footprint. The use of this criterion for the identification of “climate-conscious” institutional investors appears to bear more fruits and the authors find some evidence “that the investee companies curb their emissions, and thus CA100+ investors decrease their portfolio footprints through engagement (in addition to portfolio re-weightings away from high-emission companies).”

    The research results are less encouraging regarding the issue of whether this greening of portfolios has led to a greening of the planet. ”Overall, our analysis raises doubts about the effectiveness of investor-led initiatives in reducing corporate carbon emissions and helping take necessary action to tackle climate change for an all-economy transition to “green the planet,” the authors say.

    Investors greened their portfolio but emissions continued to grow. Although the carbon emissions of publicly listed firms grew (from 30% to 41% of total global CO2-equivalent emissions between 2005 and 2019), the GHG emissions associated with the holdings of institutional investors stayed stable at 9% of total global emissions.

    ”This occurs despite the growth in total institutional investors’ equity holdings from 43% to 53% of market capitalization,” the authors note, adding that ”If institutions were to finance the same amount of CO2e emissions per dollar invested, a crude approximation would suggest that institutional investors’ portfolio GHG footprints should have grown proportionately from 9% to 15%.”


    Throughout the presentation, Krueger and the audience highlighted several considerations that readers should bear in mind. Regarding the dataset, there were some concerns regarding the fact that most of the research focuses on Scope 1 and 2 emissions, which would lead the analysis to underestimate the contributions of fossil fuel-extracting companies.  Moreover, while the coverage seeks to be global, it was argued, although not conclusively, that data coverage of institutional investor holdings could possibly be worse for emerging markets relative to developed markets.

    From a policy perspective, the focus on public equity holdings was also a source of concern. While it makes sense for the specific set of investors considered in this article, there is a concern that these holdings, once out to institutional investors’ portfolios, could continue to exist but become invisible in the private, undisclosed portfolios of other investors. “As we pressure institutional investors to divest from brown companies, are we not just making these emissions invisible and decreasing the accountability of brown corporates?” one member of the audience asked. However, the research also highlights that most of GHG emissions occur outside of public markets.

    Analytically, it was also noted that emissions are skewed and concentrated around certain industries, such as cement and power generation in the case of Sweden. This suggests that it may be useful to consider emissions across industries rather than across countries. While the distinction between “climate-conscious” investors and their regular counterparts was welcomed, as was the distinction between climate-committed countries and those that are not, some in the audience noted that it may also be interesting to consider the question at an industry level.

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