Building portfolios of sovereign securities with decreasing carbon footprints

Abstract

bis working papers no 1038 building portfolios of sovereign securities with decreasing carbon footprints by gong cheng, eric jondeau and benoît mojon monetary and economic department september 2022 jel classification: g11, g24, q56. keywords: carbon footprints, sovereign debt, portfolio rebalancing, portfolio optimisation, active share, tracking error. bis working papers are written by members of the monetary and economic department of the bank for international settlements, and from time to time by other economists, and are published by the bank. the papers are on subjects of topical interest and are technical in character. the views expressed in them are those of their authors and not necessarily the views of the bis. this publication is available on the bis website (www.bis.org). © bank for international settlements 2022. all rights reserved. brief excerpts may be reproduced or translated provided the source is stated. issn 1020-0959 (print) issn 1682-7678 (online) building portfolios of sovereign securities with decreasing carbon footprints∗ gong cheng1, eric jondeau2, and benoˆıt mojon1 1bank for international settlements 2university of lausanne august 26, 2022 abstract we propose a strategy to build portfolios of sovereign securities with progressively declining carbon footprints. passive investors could use it as a new paris-consistent benchmark to construct a “net zero” (nz) portfolio while tracking closely the riskadjusted returns of a business-as-usual (bau) …

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