SFC Exclusive?|?Nobel Laureate Robert Engle Emphasizes?the?Importance?of?Climate Hedge Portfolio

Harry Wu, journalist for Southern Finance Omnimedia Corp (SFC)

Robert Engle, the 2003 Nobel Laureate in Economics and co-director of the Volatility Institute at NYU Shanghai (VINS), emphasized the importance of climate hedge portfolio in an exclusive interview with SFC recently. 

“If you think hard about how the transition to a decarbonized economy is going to look, you can see which stocks are likely to benefit and which ones are not,” he said. “And that kind of climate hedge portfolio is something you could invest in, but you might also want to invest in stocks that are correlated with it.”

“The measure of greenness that I am proposing is based on looking at correlations or betas of individual stocks on climate hedge portfolios,” he emphasized. “This is a way investors can reduce their exposure to the risks of climate change, and therefore is attractive to investors. But it's also a way that the market for green energy can be supported. And it's supported by the private sector, rather than by the government sector in this case.”

He think that one of the things that would make it much easier for the market to do this job would be if the government were more transparent and would make it more clear what their long run climate proposals are.

Governments have made commitments to get their economies to net zero. Yet, there isn't, in most cases, a very complete plan. How is that likely to go? What are the steps? How far should we go at this point? Engle said these uncertainties mean “investors have to guess what they think the government is going to do and form their portfolios that way. And that's not as efficient as if the guesses were actually well informed.”

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