These terms appear in the charts and tables on this page:

Understanding Climate Risk Analysis

V-Lab's climate risk tools help you analyze how climate factors affect investment performance. The analysis integrates climate-specific benchmarks with traditional financial metrics to provide a comprehensive view of climate-related risk and return.

Climate Portfolios and Benchmarks

The page displays several climate-related benchmarks that capture different aspects of climate risk. SA (Stranded Assets) tracks fossil fuel exposure. SPY-XLE shows market performance without energy. EMIT captures the emissions factor. These benchmarks help you understand whether a fund's performance comes from broad market exposure or climate-specific positioning.

Analytical Framework

V-Lab uses factor models to decompose fund returns into components explained by market movements, traditional factors (size, value), and climate factors. This separation reveals whether a fund truly provides climate-related value or simply repackages traditional factor exposures. The detailed analysis pages show regression results and statistical significance for each factor.

Navigating the Page

The page is organized to help you quickly find and evaluate climate-aware funds:

• Performance Comparison

  The benchmark table at the top shows Return, Volatility, and Sharpe Ratio for key climate benchmarks. Compare these to understand how different climate strategies have performed over your selected time period.

• Fund Sorting and Search

  The fund table supports sorting by any column. Click column headers to sort by return, volatility, or Sharpe ratio. Use the search icon to find specific funds by ticker or name.

• Category Filtering

  Use the category dropdown to filter funds by investment approach. Categories include ESG integration, sustainability themes, fossil-fuel-free mandates, and more. This helps you compare funds with similar strategies.

Fund Selection and Coverage

• Climate Fund Selection

  Funds are selected based on their climate-aware characteristics, including explicit climate mandates, ESG integration strategies, and sustainability themes. V-Lab curates and maintains the fund list, adding new climate-focused funds as they become available.

• Multiple Time Horizons

  Performance statistics are available for 1-year, 2-year, 5-year, 10-year, exponentially-weighted, and maximum available history. Longer periods provide more stable estimates; shorter periods capture recent performance. The exponentially-weighted option emphasizes recent data while still using full history.

• Risk-Adjusted Metrics

  All funds display both raw returns and Sharpe Ratios. This ensures you can compare funds on a risk-adjusted basis, not just by headline returns that might reflect higher risk-taking rather than skill.

Factor Model Analysis

• Fama-French Factor Decomposition

  Each fund's returns are analyzed against traditional Fama-French factors (Market, SMB, HML) plus climate factors. This reveals how much performance comes from broad market exposure versus climate-specific positioning.

• Climate Factor Construction

  Climate benchmarks are constructed as long-short portfolios to isolate specific climate exposures. SA captures fossil fuel risk, SPY-XLE removes energy exposure, and EMIT measures carbon intensity effects.

• Volatility Modeling

  Volatility estimates use GJR-GARCH models that capture volatility clustering and asymmetric responses to market shocks. This provides more accurate risk estimates than simple historical standard deviations.

CRISK Time Series Chart

The CRISK chart at the top of the page shows aggregate climate risk in the global financial system over time. This visualization helps you understand how climate-related financial stress has evolved and identify periods of elevated climate risk.

Reading the Chart

• CRISK Levels

  Higher CRISK values indicate greater aggregate capital shortfall that financial institutions would face during a climate stress scenario. Peaks correspond to periods when climate-related market stress was elevated.

• Trend Analysis

  Rising CRISK over time suggests increasing climate exposure in the financial system. Declining CRISK may indicate reduced climate sensitivity or improved capitalization of financial firms.

• Identifying Stress Periods

  Sharp increases in CRISK often coincide with energy market disruptions, climate policy announcements, or broader market stress that disproportionately affects climate-sensitive sectors.

Chart Controls

• Region Dropdown

  Filter CRISK by geographic region or market classification. Select continents (Americas, Europe, Asia, etc.) or market types (Developed, Emerging) to quickly view CRISK for groups of countries. This provides a higher-level view than individual country selection.

• Country Dropdown

  Select specific countries to view CRISK for financial institutions in those regions. Use 'All' to see aggregate global climate risk. Compare countries to identify regional differences in climate exposure.

• Detailed Analysis Link

  Click the chart title or the link below the chart to access the full CRISK analysis page. This shows firm-level rankings, historical time series, and detailed climate risk metrics for individual financial institutions.

Climate Benchmark Suite

• Stranded Assets (SA)

  A long-short portfolio that captures climate transition risk. Long the broad market, short energy and coal. When fossil fuel companies underperform, SA rises. Negative correlation with SA indicates potential climate hedging.

• SPY-XLE (Market Minus Energy)

  The S&P 500 with energy sector returns removed. This shows what market performance would look like without fossil fuel exposure. High correlation to SPY-XLE suggests a fund's climate strategy is primarily about avoiding energy.

• EMIT (Emissions Factor)

  Captures the return difference between low-carbon and high-carbon intensity stocks. Long the standard S&P 500, short an emissions-weighted version. Positive EMIT returns mean low-carbon stocks outperformed.

Benchmark Performance Table

The benchmark table displays key performance metrics for climate-related benchmarks. These benchmarks serve as comparison points for evaluating climate fund performance:

• ACWI (MSCI All Country World Index)

  Global equity benchmark covering developed and emerging markets. Use ACWI to compare global climate funds. High correlation to ACWI suggests the fund tracks broad global markets.

• SPY (S&P 500 ETF)

  U.S. large-cap equity benchmark. Use SPY to compare U.S.-focused climate funds. It provides a baseline for domestic market performance.

• SA (Stranded Assets)

  Climate transition risk benchmark. Rises when fossil fuels underperform. Funds with negative SA correlation may hedge climate risk.

• SPY-XLE (S&P 500 minus Energy)

  Market performance excluding energy sector. Shows whether climate fund performance comes from energy avoidance or active climate positioning.

• EMIT (Emissions Factor)

  Captures performance difference between low and high carbon intensity stocks. Positive correlation suggests the fund benefits when low-carbon stocks outperform.

Table Metrics

• Return

  Annualized return over the selected time period. Calculated from daily returns compounded to annual frequency.

• Volatility

  Annualized volatility (standard deviation of returns). Higher values indicate more variable performance and greater risk.

• Sharpe Ratio

  Risk-adjusted return measure. Higher values indicate better return per unit of risk taken. Compare across benchmarks to identify risk-return tradeoffs.

Fund Screening Tools

• Performance Ranking

  Sort the fund table by Return, Volatility, or Sharpe Ratio to rank funds by performance. Click column headers to sort ascending or descending. This helps identify top performers within your selected category and time period.

• Category Filtering

  Use the category dropdown to focus on specific investment approaches. Filter to ESG funds, sustainability themes, or fossil-fuel-free mandates. This enables like-for-like comparison within investment styles.

• Statistical Significance

  When you click through to detailed fund analysis, factor exposures include t-statistics and p-values. These indicate whether the climate factor relationships are statistically significant or might be due to chance.

Risk Analysis Tools

• Climate Factor Exposure

  Detailed fund analysis shows beta coefficients for each climate factor. Positive SA beta indicates the fund shares fossil fuel exposure; negative SA beta suggests climate hedging potential.

• Traditional Factor Separation

  Factor models separate climate effects from size, value, and market factors. This prevents misattributing small-cap or value performance to climate strategy.

• Correlation Analysis

  The Climate Benchmarks page (linked from the benchmark table) shows full correlation matrices between all benchmarks. Use this to understand how climate factors relate to each other and to broad market movements.

Data Methodology

V-Lab applies rigorous quantitative methods to climate fund analysis. Understanding these methods helps you interpret the results correctly.

Climate Hedging Identification

Climate hedges are identified through factor regression analysis. A fund with statistically significant negative exposure to the SA (Stranded Assets) factor tends to perform well when fossil fuel assets decline. This negative relationship, if persistent across time periods, suggests the fund may provide protection against climate transition risk.

Factor Model Integration

V-Lab combines traditional Fama-French factors with climate-specific factors in a unified regression framework. This allows simultaneous estimation of market beta, size exposure, value exposure, and climate factor exposures. The approach ensures that apparent climate effects are not simply repackaged traditional factors.

Return Attribution Focus

The analysis focuses on explaining fund returns, not predicting them. Factor exposures describe historical relationships that may or may not persist. Use multiple time periods and check statistical significance before drawing conclusions about a fund's climate characteristics.

Data Sources

• Climate Fund Selection

  V-Lab curates the climate fund list based on fund characteristics including stated investment mandates, ESG integration practices, sustainability themes, and fossil-fuel-free policies. Fund categories reflect investment approach and climate strategy.

• V-Lab Price Database

  Daily fund returns are sourced from V-Lab's comprehensive price database. Returns are adjusted for dividends and splits to provide accurate total return calculations.

• Factor Data

  V-Lab calculates Fama-French style factors (Market, SMB, HML) using ETF data for real-time analysis. See the Climate Risk Factors help page for detailed methodology. Climate factors (SA, SPY-XLE, EMIT) are calculated by V-Lab using constituent ETF returns.

Investment Strategy Questions

I'm new to climate investing. Where should I start?

Start by reviewing the benchmark table to understand how climate factors have performed historically. Then use the category filter to focus on a specific investment approach that matches your objectives. Sort by Sharpe Ratio to identify funds with good risk-adjusted returns. Click on individual funds to see their detailed factor analysis before making decisions.

What's the difference between ESG funds and climate funds?

ESG (Environmental, Social, Governance) funds consider a broad range of sustainability factors, not just climate. Climate-specific funds focus narrowly on climate risk and opportunities, such as avoiding fossil fuels or investing in clean energy. Some funds combine both approaches. Use the category filter to distinguish between different fund types.

How do I interpret negative SA correlation?

Negative correlation with SA (Stranded Assets) means the fund tends to perform well when fossil fuel assets struggle. This suggests the fund may hedge climate transition risk. However, correlation doesn't guarantee future performance. Check whether the relationship is statistically significant in the detailed fund analysis and consistent across multiple time periods.

Technical Questions

Why do some climate funds have higher volatility than traditional funds?

Climate-focused funds often have concentrated exposures to specific sectors (clean energy, technology) or avoid large sectors entirely (energy, utilities). This concentration increases volatility compared to diversified broad-market funds. Higher volatility isn't necessarily bad if accompanied by higher returns. Check the Sharpe Ratio to assess whether the additional volatility is compensated.

Which time period should I use for analysis?

Use multiple time periods to assess consistency. Short periods (1Y) show recent performance but may reflect temporary conditions. Longer periods (5Y, 10Y) provide more stable estimates but may not reflect current market dynamics. The exponentially-weighted option balances these concerns by weighting recent data more heavily while still using full history. If results differ dramatically across periods, the relationship may be unstable.

Why does fund performance vary so much across time periods?

Climate factors are not consistently priced in markets. In periods when energy outperforms (high oil prices, supply concerns), climate funds may lag. In periods of clean energy growth or climate policy advancement, climate funds may outperform. This variation is inherent to climate investing. Look for funds with consistent factor exposures rather than chasing recent performance.

Frequently Asked Questions

Common questions from V-Lab users:

Can climate funds really hedge against climate risk?

Some funds show consistent negative correlation with SA, suggesting they may benefit when fossil fuel assets decline. However, past correlations don't guarantee future hedging effectiveness. Climate risk may manifest in ways not captured by current benchmarks. Use climate funds as part of a diversified strategy rather than relying on them as complete climate hedges.

Why might climate funds underperform traditional funds?

Climate funds often exclude profitable energy companies, which can hurt performance when energy outperforms. They may concentrate in growth sectors like clean energy, which underperform when interest rates rise. They may also hold companies with lower current profitability but higher growth expectations. Performance depends on market conditions and the specific time period analyzed.

Are these funds suitable for regulatory climate disclosure requirements?

V-Lab provides analytical tools for understanding fund characteristics, not regulatory compliance certification. If you need to demonstrate climate alignment for regulatory purposes, consult the fund prospectus, the fund manager's climate disclosures, and regulatory guidance specific to your jurisdiction.

What exactly is in the Stranded Assets benchmark?

SA is a long-short portfolio: long the broad market (SPY) and short a blend of energy and coal exposure. When fossil fuel companies underperform the market, SA rises. The benchmark is rebalanced daily to maintain fixed weights. See the Climate Benchmarks help page for detailed construction methodology.

Building Your Analysis

• Fund Selection

  Use category filters and Sharpe Ratio sorting to identify candidate funds. Create a shortlist of funds that match your investment approach and risk tolerance.

• Factor Analysis Review

  Click through to detailed fund pages to examine factor exposures. Look for statistically significant climate factor relationships and consistent results across time periods.

• Ongoing Monitoring

  Climate factor relationships can change over time. Periodically revisit fund analysis to ensure the characteristics that attracted you remain present.

• Portfolio Context

  Consider how climate funds fit with your existing holdings. A fund with negative SA exposure may complement traditional holdings with hidden fossil fuel exposure.

Advanced Analysis

• Climate Benchmarks Page

  Visit the Climate Benchmarks page (linked below the benchmark table) to see full correlation matrices and detailed benchmark performance. This helps understand relationships between climate factors.

• CRISK Analysis

  Click the link in the CRISK chart section to access detailed climate risk analysis. This shows how climate risk varies across countries and time, providing context for fund performance.

• Individual Fund Analysis

  Click any fund in the table, or use the search bar in the main navigation to find specific funds by name or ticker. Select Climate as the application and choose a model to search. Analysis pages show full factor regression results, time series charts, and volatility modeling.

• Documentation Pages

  V-Lab's documentation pages explain the econometric methods in detail. Visit the Docs section for technical specifications of factor models, volatility estimation, and benchmark construction.