Inès Barahhou (Quantitative Analyst at Kepler Cheuvreux Solutions) and Philippe Ferreira (Deputy Head of Economics & Cross-Asset Strategy at Kepler Cheuvreux), published a new landmark white paper on sovereign bond portfolio construction with environmental constraints.
In this academic paper, they develop a framework to align sovereign bond portfolios with net zero carbon trajectories, reviewing definitions, databases, metrics, and models.
One of the key conclusions is that unless sovereigns make significant progress towards decarbonisation, fixed income investors will face hard choices. Aligning their portfolio with net zero trajectories involves significant deviations from existing benchmarks and this generates substantial financial risks such as concentration and liquidity risks.
This subject is particularly topical since institutional investors are heavily exposed to government bonds and are the most advanced in net zero investing.
Find the white paper here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4515462
The views expressed in the white paper are those of the author(s) and do not necessarily represent the views of Kepler Cheuvreux or Kepler Cheuvreux Solutions.