Recent research shows it is entirely possible to reduce a portfolio’s carbon footprint dramatically — by more than 80 per cent — while guaranteeing improved profitability. To do so, it is necessary to exclude companies with the largest carbon footprints, then use traditional portfolio construction techniques that do not concern themselves with the future excess returns of green stocks but are based on the right exposure to traditional rewarded risk factors. Such a green strategy is profitable, not because it is green but because it is smart.

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