PORTFOLIO OPTIMIZATION AND CLIMATE RISK: DECARBONIZATION OF THE S&P 500 INDEX

The objective of the thesis is to compare different climate risk metrics to decarbonize the S&P500 index, trying to assess which one provides the best performances in absolute terms and with respect to the benchmark. Decarbonizing a benchmark index means reducing the carbon footprint of the index by imposing constraints on climate risk metrics. I consider three different climate risk metrics; carbon emission, carbon intensity and carbon beta. The thesis is organised as follows. The first chapter describes how climate change is a source of financial instability and how the agents behave in order to manage and hedge the climate related risks in their investments. In the second chapter I present the three climate risk metrics. The portfolio optimization by using the different metrics is performed in the third chapter. At the end of this chapter I compare the results I have obtained in order to figure out which metric is the most efficient. Final conclusions are offered in the last chapter, the fourth one.