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By Opalesque:

A recent paper, Investing in a Warming World, examines a subtle but important problem in climate-conscious investing: the carbon metrics investors rely on to demonstrate portfolio decarbonization can be heavily distorted by stock market valuations. And this can create a misleading picture of real-world progress.

It was authored by Steffen Bixby, quantitative & ESG researcher at AQR Capital Management, a global quantitative investment management firm based in Greenwich, Connecticut. Founded in 1998 by Cliff Asness and partners, the firm had, as of December 2025, $179bn under management.

The core problem

Popular carbon metrics applied to benchmark indices like the MSCI World suggest dramatic decarbonization has occurred. Yet much of this apparent progress reflects the long equity bull market rather than actual emissions reductions by companies. These metrics are fundamentally cross-sectional (comparing entities at a point in time) rather than time-series measures, so using them in isolation to track progress over time can overstate real improvement.

The four key metrics

The paper distinguishes between:

• Financed emissions - ownership share multiplied by a company's actual GHG emissions, summed across holdings. This is the metric most directly tied to real-world......................

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