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Portfolio alignment

An R&D programme conducted in partnership with the Institute for Sustainable Finance

Context

Portfolio alignment makes it possible to measure the climate performance of a portfolio of assets. A number of alignment methodologies have been developed in the wake of the Paris Agreement to meet the objective of making financial flows compatible with a low level of emissions. To date, existing methodologies do not take account of the risk dimension. As a result, a portfolio can be aligned with a 2°C trajectory and still be significantly exposed to climate risks.

WHY?

Our alignment methodology incorporates risk indicators into portfolio construction to mitigate exposure to financial and extra-financial risks.
These indicators are added to the optimisation programme to increase the portfolio’s resilience in the face of future climate hazards, while at the same time meeting emissions reduction targets. In addition, to avoid disinvestment in the highest emitting sectors, criteria are also added to ensure that the allocation remains diversified.

How?

We are developing a new model so that portfolio alignment methodologies:
  • Can provide an indicator of exposure to climate risk;
  • Encourage companies to speed up their transition by improving transparency and comparability;
  • Help financial players to build more resilient portfolios and facilitate additionality, i.e. the specific contribution made by financial players so that beneficiaries can themselves increase the impact generated by their activities.

Who?

Banks, insurance companies, and asset managers

RESEARCHER

Rémi MONTAGU

Rémi holds a Master’s degree in Money and Finance from the Goethe University in Frankfurt, Germany, and a Master’s degree in Economics and Finance from the Université Paris-Dauphine PSL. He has consolidated his interest in the integration of environmental, social and good governance issues with financial players through various professional experiences. Rémi has joined the ESCP doctoral programme and is doing a CIFRE thesis at the Square Research Center, affiliated to the ESCP laboratory.

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