Net Zero Investing for Multi-Asset Portfolios seeking to satisfy Paris Aligned Benchmark Requirements with Climate Alpha Signals

The authors embed Paris Aligned Benchmark (PAB) requirements in an illustrative multi-asset portfolio containing developed and emerging market equities, sovereign bonds, corporate bonds, listed real estate, and commodities. By being PAB compliant, the immediate reduction and ongoing reductions in carbon emissions for each asset class are designed to limit average global temperature rises to 1.5°C, do not disinvest from any sectors, and build in forward-looking data on emissions for issuers for both corporations and governments with certain exclusions of poor climate performers. The authors show comparable performance in historical data of the multi-asset PAB portfolio to a balanced multi-asset portfolio without climate considerations. The outperformance is enhanced by alpha signals based on climate-related metrics and non-climate data