Introduction

A large proportion of climate equity indices have underperformed cap-weighted benchmarks over the past three years. What conclusions might investors draw from potentially disappointing results, and to what extent should these influence portfolio strategy? In this Market Review, we examine forty index-following funds with climate-oriented branding (low carbon, climate, green, transition, environment or similar.

Key takeaways

• Relative three-year performance is in the red: The median U.S. strategy in this sample has delivered a -1.8% relative return per annum versus a cap-weighted benchmark (before fees), while the median European index returned -3.1%. The average (mean) relative return in both markets is -3%.
• Performance dispersion is high across the sample, showcasing the diversity of today’s universe of climate-oriented equity products. We find a gap of more than 6% between top quartile and bottom quartile in both the U.S. and Europe.
• Idiosyncratic risk was the primary driver of overall underperformance, contributing more than exposure to any fundamental factor or sector. That said, tilts towards the ‘Size’ factor did detract from returns, particularly in the U.S. (where mega cap stocks have dominated returns through the period in question), and a directionally “green” exposure to Scientific Portfolio’s Climate Transition (CT) risk factor² appeared to support performance only in Europe.

While not exhaustive, these findings point to a need for scrutiny. Many global asset owners have sought to reduce carbon emissions and/or improve various climate alignment metrics in public equity portfolios during the decade that has followed the Paris Climate Change Conference. While outperformance may not be among an investor’s objectives, stakeholder support has historically been strengthened by evidence suggesting that relative losses (if any) would likely be minimal. Deeper insight can help investors to assess portfolios and consider whether adjustments may be appropriate.

View climate, performance and risk data for your equity portfolio and a wide range of equity strategies on the Scientific Portfolio platform.

Authors

Aurore Porteau de La Morandière
ESG & Quant Researcher,
Scientific Portfolio …………………………………………..

Shahyar Safaee
Deputy CEO and Business Development Director,
Scientific Portfolio

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https://scientificportfolio.com/wp-content/uploads/2025/09/Climate-Equity-Performance-Needs-Close-Attention.pdf

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