  Like ESG investing, climate change is an important concern for asset managers
and owners, and a new challenge for portfolio construction. Until now,
investors have mainly measured carbon risk using fundamental approaches, such
as with carbon intensity metrics. Nevertheless, it has not been proven that
asset prices are directly impacted by these fundamental-based measures. In this
paper, we focus on another approach, which consists in measuring the
sensitivity of stock prices with respect to a carbon risk factor. In our
opinion, carbon betas are market-based measures that are complementary to
carbon intensities or fundamental-based measures when managing investment
portfolios, because carbon betas may be viewed as an extension or
forward-looking measure of the current carbon footprint. In particular, we show
how this new metric can be used to build minimum variance strategies and how
they impact their portfolio construction.
