What question did this study set out to answer?

The aim is to develop an investment strategy that allows passive investors to mitigate climate risk while maintaining financial returns.

Hedging Climate Risk

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Dynamic investment strategy mitigates climate risk in long-term passive investors, suggesting potential financial benefits.

The aim is to develop an investment strategy that allows passive investors to mitigate climate risk while maintaining financial returns.
Introduced a dynamic investment approach to hedge climate risk.
Illustrated the elimination of tracking error for a low-carbon index.
Compared a low-carbon index with its benchmark in terms of carbon footprint and potential returns.
Achieved a low-carbon index with 50% less carbon footprint than its benchmark.
Low-carbon index returns align with the benchmark until carbon pricing occurs.
Post-carbon pricing, the low-carbon index is expected to outperform the benchmark.

Andersson et al. (2016) studied this question.

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