Carbon risk for investors: Building a "Smart Carbon" portfolio

There is an increasing likelihood that governments of major economies will act within the next decade to reduce greenhouse gas emissions, probably by intervening in the fossil fuel markets.

Impax argues that investors should model the impact of this potential intervention and replace their market-weighted basket of energy stocks with a new energy basket that includes lower weightings of some fossil fuel stocks with equivalent higher weightings in stocks of companies active in energy efficiency markets, thereby maintaining exposure to energy price factor risk.