“Carbon emissions, long seen as a risk to the global ecosystem, may be a ticking time bomb for another group entirely: passive index investors, including pension funds, major institutions, and even individuals saving for retirement,” according to Columbia Ideas at Work.
“For these investors, index funds’ long reliance on the steady growth and high returns of carbon-intensive energy companies could soon become a financial liability as new emissions taxes and trading schemes eat away at fossil fuel companies’ bottom lines. A new investment strategy outlined by Patrick Bolton, however, offers investors an opportunity to hedge this risk, lowering their exposure to carbon by more than 50 percent while earning the same returns.”
“The carbon divestment movement, as the global effort to induce investors to wind down their stakes in fossil fuels has become known, has, until recently, largely been confined to college campuses where it has been driven by a strong moral agenda.”
Said Bolton: “Up to this point, the divestment movement has been motivated by a desire to be a good citizen.”
Read the full paper, Hedging Climate Risk.