With traditional low-volatility portfolios loading up on high-carbon emitters like utilities and materials companies, pursuing environmental goals seems difficult. To address this challenge, Invesco have developed a new approach that successfully combines low volatility with low-carbon exposure.
Many analysts deem companies with high emissions riskier as they likely face additional costs in the transition to a low-carbon economy. Carbon intensity, defined as carbon emissions per unit of output, is not equally distributed across the stock universe. Rather, it is concentrated in a minority of high-emitting companies and sectors. Indeed, about 5% of stocks by market capitalisation account for 75% of total S&P 500 carbon emissions.¹
In this article, Invesco discuss constructing a low-volatility, low-carbon portfolio. (¹Source: MSCI, S&P, ISS Ethix; March 31, 2021, using 2019 emissions data)
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