When it comes to managing climate risk, what is the wise investor to do?  Low-carbon investing is one possibility.

We recently interviewed Marielle de Jong, head of fixed -income quant research at Amundi Asset Management.  She said, “The purpose of low-carbon investing is not to penalize companies that produce a lot of CO2. The question is whether the production line is carbon efficient, whether there is no unnecessary spoilage. That is why the selection criterion is the intensity, the tonnage of CO2 per added value, and not the tonnage itself.”

Climate change and global warming concept

She cautioned, “It is a complex task to measure CO2  emissions, and even if it were [easy], it is not easy to identify who is responsible. Take a bank for example, which finances a polluting company. Does the bank share in the responsibility? To what extent? Those questions remain unresolved. Data providers like TruCost or South Pole are working hard to resolve this issue.”

De Jong co-authored research recently published in the Financial Analysts Journal.  She said, “The advantage of our single-criterion approach is clarity. The carbon criterion is easy to monitor, simplifying the task of installing a hedge. Climate hedging is by the way not to be confused with impact investing. If an investor purchases Green Bonds for example to favour clean energy projects, risk is voluntarily sought, not avoided.” ª

The extended interview with de Jong and others on managing climate risk will appear in the June 2017 issue of The Analyst.

Click here to view the research paper it’s based on: “Weathered for Climate Risk: a Bond Investment Proposition” – M. de Jong and A. Nguyen, 72(3) Financial Analysts Journal (2016).