Whereas most buyers assess local climate hazards of An group by evaluating carbon emissions, AQR Capital Administration says that there’s extra to the story.
In A mannequin new report, the options agency explored the insights of a 2020 evaluation paper and decided that buyers might use these findings in tandem with fullly different strategies To shield their portfolios As a Outcome of the financial system shifts to a low carbon mannequin.
AQR factors out that “local climate change and carbon emissions are linked, however not synonymous,” which Signifies that the emission knowledge can’t fullly mirror A particular person inventory’s local climate publicity. As a complement to The conventional carbon-emission strategy, AQR studied The mannequin new hedging framework proposed by 5 college students final yr from Ny College and Yale College, who used machine studying and pure language processing methods To evaluation The worth sensitivity of particular person shares to local climate information safety.
“Emission knowledge are [a] noisy mirrorion of the true local climate publicity of a agency,” the AQR report said. “That is each because some emissions Could Even be troublesome to measure, and [because] important drivers of local climate publicity Might be not captured by emissions.”
AQR analyzed The outcomes of “Hedging Climate Change News,” which studied how inventory prices react to local climate information. The authors of that paper — Robert Engle, Stefano Giglio, Bryan Kelly, Heebum Lee, and Johannes Stroebel — first measured the phrase-rely frequencies of An outlined local climate-change vocabulary and the sentiment Of tales articles from the Wall Road Journal. They then pinned down local climate phrases Similar to “inexperiencedhouse,” “carbon,” “local climate,” and “temperature” famous in white papers such As a Outcome of the Intergovernmental Panel on Climate Change. As quickly as …….