Carbon Considerations and Pricing in Global Asset Classes

Abstract

Angeleno Group (AG) is a venture capital and growth equity firm interested in pricing carbon costs into their asset class valuations. AG hopes to understand the financial impacts of carbon because companies with higher levels of carbon exposure are expected to be riskier, which should be reflected in higher returns. In this analysis of a portfolio of the S&P 500 from 2013 to 2022, performance is evaluated by considering how a hypothetical carbon cost based on the constituents’ absolute emissions and carbon intensity changes the portfolio’s volatility, returns, and Sharpe ratio. The carbon impacts are analyzed from the perspective of AG and institutions such as endowments and foundations.