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White Paper

Sustainable Commodities Investing

January 22, 2025 - Michele L. Aghassi

Investors seeking to incorporate sustainability considerations into their commodities portfolios may have a variety of ESG objectives. In many ways, assessing which commodities are sustainable is the easy part. The more difficult part is identifying what investment action in commodities will achieve an ESG goal. This paper explores several types of commodities-related sustainability motivations, and how they may be mapped to consistent investment action.

Journal Article

CIO Perspectives: An Interview with Cliff Asness

September 1, 2024 - Cliff Asness

In a wide ranging interview, AQR managing principal Cliff Asness discusses many aspects of AQR’s investment philosophy and approach from the perspective of a CIO – how we adapt our process to changing market conditions, how we think about adding innovative technology such as machine learning to our process, and more.

Annual ESG Report 2023

March 25, 2024

Working Paper

In Search of the True Greenium

March 1, 2024 - Marc Eskildsen Markus Ibert Theis Ingerslev Jensen Lasse H. Pedersen

The greenium (the expected return of green securities relative to brown) is a central impact measure for ESG investors. We propose a robust green score combined with forward-looking expected returns, yielding a more precisely estimated annual equity greenium.

Working Paper

Carbon Pricing versus Green Finance

March 14, 2023 - Lasse H. Pedersen

We show that green finance should not be used if the carbon price equals its social cost. However, with too low carbon prices, green finance can implement the social optimum if the cost of capital can be controlled and there are no stranded assets. We show explicitly how to "translate" a carbon tax into green finance terms, highlight how green finance should depend on scope 1, 2, and 3 emissions, present its limitations, and illustrate the predictions empirically.

Annual ESG Report 2022

February 22, 2023

As part of our ongoing commitment to ESG, we are pleased to share our ESG annual report with you. This report reviews our ESG developments and progress in 2022, while outlining our approach, governance structure, and dedicated resources to this increasingly important aspect of investing.

White Paper

How Portfolios Can Impact the Real Economy

February 6, 2023 - Bradley Jones Michael A. Mendelson Lukasz Pomorski

To help clarify how investors seeking impact through their financial portfolios can affect the direction of corporate decision making, we analyze the two channels of influence – direct control and changing the cost of capital. We argue that there are no other first-order mechanisms for a financial portfolio to have “impact” beyond these. As a real-world example, we apply these insights to the portfolio “net zero” initiative.

Working Paper

Is Capital Structure Irrelevant with ESG Investors?

September 23, 2022 - Lasse H. Pedersen Peter Feldhütter

We examine whether capital structure is irrelevant for enterprise value and investment when investors care about ESG issues, which we denote “ESG-Modigliani-Miller” (ESG-MM). Theoretically, we show that ESG-MM holds if ESG is additive and markets are perfect. Empirically, we provide evidence of failure of ESG-MM, implying that firms and governments can exploit non-additive ESG or segmented markets.

Journal Article

ESG Ratings: A Compass without Direction

August 2, 2022 - David F. Larcker Lukasz Pomorski Brian Tayan Edward M. Watts

We examine the recent concerns about the reliability of the assessments of ESG ratings providers. We review the demand for ESG information, the stated objectives of ESG ratings providers, how ratings are determined, the evidence of what they achieve, and structural aspects of the industry that potentially influence ratings. We find that while ESG ratings providers may convey important insights into the nonfinancial impact of companies, significant shortcomings exist in their objectives, methodologies, and incentives which detract from the informativeness of their assessments.

News

A Fireside Chat with Cliff Asness and Institutional Investor on ESG Investing

June 9, 2022

AQR Managing and Founding Principal Cliff Asness sat down with Institutional Investor Editor-in-Chief Michael Corcoran to answer some of the key questions on ESG investing. The conversation covered how a quantitative manager can effectively engage with companies, how investors can use their portfolios to help address climate change, why shorting is an effective ESG tool, and more.