The Next Challenge: ESG and CLIMATE Investing

Abstract

This chapter focuses on the most recent investment approaches dictated by investors’ growing awareness of the positive impact that finance can have on sustainability and climate change mitigation. We will first focus on ESG investing and on the main tool available to the manager for defining the portfolio, i.e., the ESG ratings. A description of the main rating providers will be provided, emphasising the problem of divergence in ratings as well as the size effect. The main sustainable investment strategies will then be listed. We will therefore focus on climate investing, briefly listing the European regulatory process that led to the sudden development of this investment philosophy. Finally, we will focus on the ESG and climate indices and on the risk and return profiles of a sample of these indices.