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| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Reducing the carbon footprint of an equity portfolio: The relevance of scope 3 emission data for low-carbon portfolio construction |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Date | 2021 |
| Abstract Text | Measuring, disclosing, and reducing the carbon footprint of investment portfolios are increasingly prominent issues for institutional investors. Although carbon emissions cannot capture the entire spectrum of climate risks and caveat regarding data assessment and standardization remain, they are momentarily one of the most widely used proxies to identify assets with exposure to non-physical climate risks. In practice, the strategy chosen to reduce the carbon footprint of equity portfolios is critically dependent on how investor define, measure, and reduce carbon emissions at a portfolio level. This thesis demonstrates that there are different ways to measure and reduce the carbon exposure of investment portfolios. Moreover, it shows that an inclusion of all up- and downstream corporate carbon emissions – so-called scope 3 emissions – might potentially improve existing limitations of emission-based investment strategies and reframe the discussion around emission metrics and climate risks. Using novel scope 3 emission data, this thesis presents evidence that emission data are dominated by outliers, sector differences and scope 3 emissions. Moreover, this thesis examines the relevance of scope 3 emissions from various aspects and thereby contributes to the understanding of the implications of a scope 3 emission data inclusion for low-carbon portfolio construction+. The inclusion of scope 3 emission data leads to a different emission distribution within and between sectors/companies, reduces the potential for a relative reduction of a portfolio’s carbon footprint, and potentially results in a different construction of low-carbon portfolios. Although significant performance differences between different scope emission portfolios could not be observed, the inclusion of scope 3 emission data led to significant differences in constituents, sector and emission characteristics indicating relevant implication for the construction of low-carbon portfolios. |
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