Scientific Beta

The December 2023 issue of EDHEC Vox, dedicated to Pioneering Sustainable Finance, includes an article on "How ESG scores conflict with climate investing" that focuses on a recent study by Scientific Beta, highlighting the conflicts between green and ESG portfolio objectives and showing that pursuing multiple ESG and climate objectives leads to "green dilution".

The December 2023 issue of EDHEC Vox, dedicated to Pioneering Sustainable Finance, includes an article on "How ESG scores conflict with climate investing" that focuses on a recent study by Scientific Beta, highlighting the conflicts between green and ESG portfolio objectives and showing that pursuing multiple ESG and climate objectives leads to "green dilution".

The corresponding paper entitled "Green Dilution: How ESG Scores Conflict with Climate Investing" quantifes the trade-off faced by a "green" equity investor who has a priority of reducing carbon intensity while also improving ESG scores. It shows that weighting global stocks by both carbon intensity and ESG scores completely cancels out the large carbon intensity reduction achievable for investors who solely focus on that objective. Investors can avoid green dilution by focusing portfolio construction on carbon intensity reduction while using ESG exclusions.

The remainder of this edition of EDHEC Vox describes how EDHEC’s research, courses and programmes are helping companies and policy makers better understand how to drive innovation, invest in promising technologies and incentivise sustainable action by companies and individuals in order to fight climate change.