The Market Measure of Carbon Risk and its Impact on the Minimum Variance Portfolio

Like ESG investing, climate change is an important concern for asset managers and owners, and a new challenge for portfolio construction. Until now, investors have mainly measured carbon risk using fundamental approaches, such as with carbon intensity metrics. Nevertheless, it has not been proven that asset prices are directly impacted by these fundamental-based measures. In this paper, we focus on another approach, which consists in measuring the sensitivity of stock prices with respect to a carbon risk factor