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Indices Insights Summer Summaries - Introducing climate beta: a complementary climate risk metric

In this Indices Insights Summaries edition, we provide a brief recap of our latest articles related to climate risk measures. Links to the original web articles are also included for readers who are interested in the detailed descriptions of the data and methodology used.

Authors

    Climate & Biodiversity Strategist
    Climate Data Scientist

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Summary

  1. Carbon emissions data is inadequate for distinguishing between climate leaders and laggards
  2. Climate beta measures how sensitive a stock is to climate risk and this metric is able to discern between climate leaders and laggards
  3. Climate beta measures how sensitive a stock is to climate risk and this metric is able to discern between climate leaders and laggards

We first examined whether the information gleaned from carbon emissions data suffices for identifying climate leaders and laggards, but found that it is inadequate for this purpose. We then addressed this by showing how our climate beta measure, which indicates how sensitive individual stocks are to the climate risk factor, actually captures different information on climate risk compared to carbon footprint data. We, therefore, determined that climate beta is better suited to distinguish between climate leaders and laggards. We then concluded by showing that integrating climate beta can also effectively neutralize climate risk in investment portfolios.

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