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Working Paper

Sustainable Systematic Credit

Interest in sustainable investing is now expanding into fixed income. This paper assesses how measures of sustainability/ESG might be relevant for corporate bonds and analyzes how ESG measures can be incorporated into an investment process to achieve the joint object of maximizing risk-adjusted returns and a sustainability target.

Perspective

Shorting Your Way to a Greener Tomorrow

It would be an understatement to say there is confusion in the industry about the use of shorting in an ESG context. When it comes to calculating a portfolio’s ESG score, we have heard arguments ranging from "ignore the shorts” to “net them against longs,” and, my favorite as it’s creatively insane, “pretend the shorts are actually longs.” This note explains why it is critical that shorts be properly accounted for, so that investors can use shorting to reduce carbon exposure, to get to net zero or to achieve other ESG goals.

White Paper

(Car)Bon Voyage: The Road to Low Carbon Investment Portfolios

We discuss how an investment portfolio could dramatically reduce its carbon footprint, potentially even achieving a ‘net zero’ carbon footprint. We discuss the pros and cons of techniques to achieve carbon reduction goals, including security selection, shorting high carbon footprint companies, and trading instruments such as carbon offsets and carbon permits.

Working Paper

Does ESG Help or Hurt Returns?

Combining several large data sets, we compute the empirical ESG-efficient frontier and show the costs and benefits of responsible investing.

Working Paper

Climate Finance

The paper reviews the literature studying interactions between climate change and financial markets, including various approaches to incorporating climate risk in macro-finance models as well as the empirical literature that explores the pricing of climate risks across several asset classes.

Data Set

Responsible Investing: The ESG-Efficient Frontier – Original Paper Data

This the original data set used in “Responsible Investing: The ESG-Efficient Frontier” (Pedersen, Fitzgibbons and Pomorski). It contains the total returns of the value-weighted and equal-weighted portfolios used in the paper.

Alternative Thinking

Responsible Asset Selection: ESG in Portfolio Decisions

We discuss how Environmental, Social, and Governance (ESG) considerations may be incorporated in a portfolio and how they may affect risk and return outcomes.

Working Paper

Responsible Investing: The ESG-Efficient Frontier

Combining several large data sets, we compute the empirical ESG-efficient frontier and show the costs and benefits of responsible investing.

Working Paper

Hedging Climate Change News

We propose and implement a procedure to dynamically hedge climate change risk and discuss multiple directions for future research on financial approaches to managing climate risk.

White Paper

Clearing the Air: Responsible Investment

What is ESG? AQR and the UN PRI collaborated to propose a framework of the approaches and terms necessary to have an informed discussion and investment policy on responsible investment, grounded in both responsible asset selection and responsible ownership.