Indices insights: Do investors act on shifts in climate concerns?

Indices insights: Do investors act on shifts in climate concerns?

25-08-2022 | Insight

A novel ‘polluting-minus-clean’ portfolio tends to underperform in periods of heightened climate policy uncertainty, and vice versa. Therefore, it can be of practical relevance to investors as it helps to distinguish climate leaders from laggards.

  • Joop  Huij
    Head of Indices
  • Thijs Markwat
  • Lucian Peppelenbos
    Climate & Biodiversity Strategist
  • Simon Lansdorp
    Portfolio Manager

Speed read

  • We introduce a novel portfolio that is long ‘polluting’ stocks and short ‘clean’ stocks
  • It typically underperforms in months with heightened climate concerns, and vice versa
  • It also tends to lag in months with anomalously high temperatures, and vice versa

In the previous ‘Indices insights’ article,1 we outlined how the carbon footprint metric is useful for mapping out portfolio-level or entity-level decarbonization pathways. However, we also determined that it is less effective in differentiating between climate leaders and laggards. For this purpose, additional stock-level climate data that captures other dimensions is required.

In this article, we start to address this issue by introducing a novel long-short polluting-minus-clean (PMC) portfolio, similar to the carbon portfolio that is put forward in a recent research paper.2 It is based on a portfolio that takes long positions in a basket of stocks that contribute negatively to one or multiple climate-related SDGs (‘polluting’), and short positions in a basket of stocks that contribute positively to climate-related SDGs (‘clean’). As such, the PMC portfolio tracks the difference in returns between the polluting and clean companies.

Stay informed on our latest insights with monthly mail updates
Stay informed on our latest insights with monthly mail updates

PMC portfolio picks up on climate policy uncertainty trends

To assess the insights that can be drawn from the PMC portfolio, we first scrutinized its performance over time in relation to sentiments regarding climate change. Specifically, we tested whether companies that contribute negatively to climate-related SDGs are more negatively impacted by an (unexpected) rise in concerns around climate change compared to those that contribute positively to climate-related SDGs.

As a proxy and robustness test for the level of climate concerns, we referred to the climate policy uncertainty (CPU) and temperature anomaly indices, respectively. The former is based on the volumes of text-based newsflow linked to climate change as this reflects uncertainty around future climate policy, while the latter identifies months with anomalously high or low temperatures.

Figure 1 | PMC portfolio tends to underperform in months with heightened climate policy uncertainty

Source: Robeco. The sample period is from January 2006 until August 2021.

In Figure 1, Panel A illustrates the monthly changes in the CPU index alongside the cumulative returns of the PMC portfolio. The orange bars denote the months in which there was a relatively significant upward shift in the CPU index, which corresponds to months characterized by rising climate concerns. Similarly, the blue and grey bars reflect the months during which climate concerns decreased significantly and were stable, respectively.

Panel B depicts the average performance of the PMC portfolio across different regimes based on sentiment regarding climate change. In periods of rising, stable and subsiding climate concerns, it delivered an annualized return of -4.0%, 1.3% and 1.4%, respectively. This outcome is in line with our expectations and allows us to conclude that climate laggards tend to be more negatively affected during periods of increased climate policy uncertainty compared to climate leaders.

PMC portfolio is also sensitive to anomalous temperatures

As a robustness test, we also analyzed the performance of the PMC portfolio in months with anomalous temperatures. We assumed that concerns around climate change increase in periods when the average temperature is anomalously high, and vice versa. The results are shown in Figure 2.

Similar to the previous outcomes, the PMC portfolio underperformed on average in months when average temperatures were anomalously high as it generated an annualized return of -4.8%. By contrast, it delivered a significantly higher annualized return of 4.4% during months with anomalously low average temperatures.

Figure 2 | PMC portfolio tends to underperform in months with anomalously high temperatures

Source: Robeco. The sample period is from January 2006 until August 2021.

Data and methodology

The starting point of our analysis is the S&P Global LargeMidCap universe. Using Robeco’s proprietary SDG framework, we identify stocks that either contribute positively or negatively to climate-related SDGs.

The PMC portfolio is constructed by taking long positions in stocks that have an SDG score of -2 or -3 for either SDG 7 (affordable and clean energy), SDG 11 (sustainable cities and communities) and SDG 13 (climate action), and short positions in stocks that have an SDG score of 2 or 3 on either one of the same SDGs. As SDG scores for individual companies are not available before 2017, we construct the long and short legs for that period by sorting stocks on the RobecoSAM carbon intensity measure using the 30th and 70th percentiles, respectively.3

To analyze the performance of the PMC portfolio across different regimes based on climate concerns, we rely on two measures: CPU and temperature anomaly indices.4 The CPU index is constructed by focusing on the textual similarities of authoritative texts on climate change – for example frequently used word combinations in Intergovernmental Panel on Climate Change (IPCC) reports – with articles in the Wall Street Journal in a month. Months with high volumes of news linked to climate change indicate heightened uncertainty around future climate policy, and vice versa.

For instance, climate policy uncertainty peaked in December 2009 when the COP15 event took place and in November 2015 which was the month before the COP21 event when the Paris Agreement was adopted. The month-to-month difference in the CPU index indicates either increases or decreases in climate concerns. The three climate regimes (increasing, stable, decreasing) are defined by using the 25th and 75th percentiles of the month-to-month changes in the CPU index over the full sample period.

Similarly, we split the sample into three climate regimes based on the 25th and 75th percentiles of the detrended temperature anomaly index. This is based on data from the Global Land-Ocean Temperature Index sourced from the National Centers for Environmental Information. A temperature anomaly is defined as a deviation from the 20th century average reference temperature.5


In our analysis, we assessed the performance of a novel PMC portfolio across different regimes based on climate concerns. In line with our expectations, we found that it tends to underperform in periods of heightened climate policy uncertainty, and vice versa. Moreover, we performed a robustness test and saw that it also lags in periods of anomalously high average temperatures, and vice versa. As a result, we believe the PMC portfolio can be used practically by investors to help distinguish climate leaders from laggards.

The Indices insights series provides new insights focused on index investing, particularly on the topics of sustainable investing, factor investing and/or thematic investing. The articles are written by the Sustainable Index Solutions team and often in close cooperation with a Robeco specialist in the field. The team has vast experience in research and portfolio management and has been designing sustainable, factor and thematic indices since 2015 for a large variety of clients: sovereign wealth funds, pension funds, insurers, global investment consultants, asset managers and private banks. The team can also tailor sustainable indices to cater to client-specific needs.


1  Huij, J., Lansdorp, S., Peppelenbos, L., and Markwat, T., June 2022, “Can carbon emissions data identify leaders and laggards”, Robeco article.
2 Huij, J., Laurs, D., Stork, P. A., and Zwinkels, R. C. J., November 2021, “Carbon beta: A market-based measure of climate risk”, SSRN working paper.
3 The PMC portfolio is very similar to the ‘polluting-minus-clean’ factor introduced by Huij, J., Laurs, D., Stork, P. A., and Zwinkels, R. C. J., November 2021, “Carbon beta: A market-based measure of climate risk”, SSRN working paper.
4 For a detailed explanation on the construction of this data, please refer to the academic paper in the above footnote.
5 See: https://www.ncei.noaa.gov/access/monitoring/global-temperature-anomalies/

Indices insights
Read all articles

Important information

The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.



1. General
Please read this information carefully.

This website is prepared and issued by Robeco Hong Kong Limited ("Robeco"), which is a corporation licensed by the Securities and Futures Commission in Hong Kong to engage in Type 1 (dealing in securities); Type 4 (advising in securities) and Type 9 (asset management) regulated activities. The Company does not hold client assets and is subject to the licensing condition that it shall seek the SFC’s prior approval before extending services at retail level. This website has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.

2. Important risk disclosures
2. Important risk disclosures Robeco Capital Growth Funds (“the Funds”) are distinguished by their respective specific investment policies or any other specific features. Please read carefully for the risks of the Funds:

  • Some Funds are subject to investment, market, equities, liquidity, counterparty, securities lending and foreign currency risk and risk associated with investments in small and/or mid-capped companies.
  • Some Funds are subject to the risks of investing in emerging markets which include political, economic, legal, regulatory, market, settlement, execution, counterparty and currency risks.
  • Some Funds may invest in China A shares directly through the Qualified Foreign Institutional Investor (“QFII”) scheme and / or RMB Qualified Foreign Institutional Investor (“RQFII”) scheme and / or Stock Connect programmes which may entail additional clearing and settlement, regulatory, operational, counterparty and liquidity risk.
  • For distributing share classes, some Funds may pay out dividend distributions out of capital. Where distributions are paid out of capital, this amounts to a return or withdrawal of part of your original investment or capital gains attributable to that and may result in an immediate decrease in the net asset value of shares.
  • Some Funds’ investments maybe concentrated in one region / one country / one sector / around one theme and therefore the value of the Fund may be more volatile and may be subject to concentration risk.
  • The risk exists that the quantitative techniques used by some Funds may not work and the Funds’ value may be adversely affected.
  • In addition to investment, market, liquidity, counterparty, securities lending, (reverse) repurchase agreements and foreign currency risk, some Funds are subject to risk associated with fixed income investments like credit risk, interest rate risk, convertible bonds risk, ABS risk and the risk of investments in non-investment grade or unrated securities and the risk of investments made in non-investment grade sovereign securities.
  • Some Funds can use derivatives extensively. Robeco Global Consumer Trends Equities can use derivatives for hedging and efficient portfolio management. Derivatives exposure may involve higher counterparty, liquidity and valuation risks. In adverse situations, the Funds may suffer significant losses (even a total loss of the Funds’ assets) from its derivative usage.
  • Robeco European High Yield Bonds is subject to Eurozone risk.
  • Investors may suffer substantial losses of their investments in the Funds. Investor should not invest in the Funds solely based on the information provided in this document and should read the offering documents (including potential risks involved) for details.

3. Local legal and sales restrictions
The Website is to be accessed by “professional investors” only (as defined in the Securities and Futures Ordinance (Cap.571) and/or the Securities and Futures (Professional Investors) Rules (Cap.571D) under the laws of Hong Kong). The Website is not directed at any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the publication or availability of the Website is prohibited. Persons in respect of whom such prohibitions apply or persons other than those specified above must not access this Website. Persons accessing the Website need to be aware that they are responsible themselves for the compliance with all local rules and regulations. By accessing this Website and any of its pages, you acknowledge your agreement with understanding of the following terms of use and legal information. If you do not agree to the terms and conditions below, do not access this Website or any pages thereof.

The information contained in the Website is being provided for information purposes.

Neither information nor any opinion expressed on the Website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. The information contained in the Website does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, most recent annual and semi-annual reports, which can be all be obtained free of charge at www.robeco.com/hk/en and at the Robeco Hong Kong office.

4. Use of the Website
The information is based on certain assumptions, information and conditions applicable at a certain time and may be subject to change at any time without notice. Robeco aims to provide accurate, complete and up-to-date information, obtained from sources of information believed to be reliable. Persons accessing the Website are responsible for their choice and use of the information.

5. Investment performance
No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of your investments may fluctuate. The value of the assets of Robeco investment products may also fluctuate as a result of the investment policy and/or the developments on the financial markets. Results obtained in the past are no guarantee for the future. Past performance, projection, or forecast included in this Website should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Fund performance figures are based on the month-end trading prices and are calculated on a total return basis with dividends reinvested. Return figures versus the benchmark show the investment management result before management and/or performance fees; the fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the valuation moment of the benchmark.
Investments involve risks. Past performance is not a guide to future performance. Potential investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors before any investment decision is made. Investors should ensure they fully understand the risks associated with the fund and should also consider their own investment objective and risk tolerance level. Investors are reminded that the value and income (if any) from shares of the fund may be volatile and could change substantially within a short period of time, and investors may not get back the amount they have invested in the fund. If in doubt, please seek independent financial and professional advice.

6. Third party websites
This website includes material from third parties or links to websites maintained by third parties some of which is supplied by companies that are not affiliated to Robeco. Following links to any other off-site pages or websites of third parties shall be at the own risk of the person following such link. Robeco has not reviewed any of the websites linked to or referred to by the Website and does not endorse or accept any responsibility for their content nor the products, services or other items offered through them. Robeco shall have no liability for any losses or damages arising from the use of or reliance on the information contained on websites of third parties, including, without limitation, any loss of profit or any other direct or indirect damage. Third party off-site pages or websites are provided for informational purposes only.

7. Limitation of liability
Robeco as well as (possible) other suppliers of information to the Website accept no responsibility for the contents of the Website or the information or recommendations contained herein, which moreover may be changed without notice.
Robeco assumes no responsibility for ensuring, and makes no warranty, that the functioning of the Website will be uninterrupted or error-free. Robeco assumes no responsibility for the consequences of e-mail messages regarding a Robeco (transaction) service, which either cannot be received or sent, are damaged, received or sent incorrectly, or not received or sent on time.
Neither will Robeco be liable for any loss or damage that may result from access to and use of the Website.

8. Intellectual property
All copyrights, patents, intellectual and other property, and licenses regarding the information on the Website are held and obtained by Robeco. These rights will not be passed to persons accessing this information.

9. Privacy
Robeco guarantees that the data of persons accessing the Website will be treated confidentially in accordance with prevailing data protection regulations. Such data will not be made available to third parties without the approval of the persons accessing the Website, unless Robeco is legally obliged to do so. Please find more details in our Privacy and Cookie Policy.

10. Applicable law
The Website shall be governed by and construed in accordance with the laws of Hong Kong. All disputes arising out of or in connection with the Website shall be submitted to the exclusive jurisdiction of the courts of Hong Kong. 

Please click the “I agree” button if you have read and understood this page and agree to the Disclaimers above and the collection and use of your personal data by Robeco, for the purposes for which such data is collected and used as set out in the Privacy and Cookie Policy, including for the purpose of direct marketing of Robeco products or services. Otherwise, please click “I Disagree” to leave the website.

I Disagree