In conventional portfolio attribution analysis, the portfolio manager can see how their sector allocation and company selection decisions contribute to better returns vs the benchmark.

YvesBlue uses the same attribution method to demonstrate how the portfolio's sector allocation and company selection decisions resulted in lower carbon emissions compared to the benchmark.

A portfolio can differ from the benchmark in carbon performance by sector weight decisions or by selecting certain companies within those sectors relative to the benchmark.

First we provide:

  1. The sector weights of the portfolio vs the sector weights of the benchmark

  2. The carbon intensity (tonnes carbon equivalent/$mUSD) of the portfolio and benchmark

Then in the Attribution Table:

Sector: The first column shows the way that the portfolio's sector allocation decisions compares with the benchmark's for carbon intensity (tonnes CO2e per mUSD). This is the difference in the sector weights multiplied by the benchmark's carbon intensity.

Company: The way that the portfolio's company selection within each sector compares for carbon intensity vs. the benchmark's company selection (tonnes CO2e per mUSD). This is the difference in the carbon intensities for a sector multiplied by the benchmark's weight.

Combined Effect: measures the difference between portfolio weight and benchmark weight for a sector multiplied by the difference between the portfolio carbon intensity and the benchmark's carbon intensity for that sector

Sum: simply adds these three columns together. A negative number would indicate that through sector allocation and company selection decisions, the portfolio is more carbon efficient.

for further reference:

https://www.cfainstitute.org/-/media/documents/support/programs/cipm/2019-cipm-l1v1r5.ashx

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