Sustainable commodity factors
Published in , 2025
We examine the asset pricing implications of sustainability in commodity prices. We focus on metals and agricultural commodities, for which we collect environmental footprint data, namely greenhouse gas emissions and water consumption. We first build green-minus-brown portfolios based on these footprints. Our findings yield no evidence that sustainability is priced in the cross-section of commodity returns, so that a green tilt does not change the expected performance. Second, we document strong benefits when diversifying equity and bond allocations with low-carbon commodities: a 22% welfare improvement when the commodity share is 20%. Such allocations also allow important footprint reductions at the portfolio level. These results underline the role and opportunities of sustainability in commodity markets. They also reveal the interest in extending green portfolios to commodities which, in turn, have the potential to broaden the impact of sustainable investing.
Recommended citation: Coqueret, Guillaume and Tavin, Bertrand and Zhou, Yuxin, Sustainable commodity factors (January 31, 2025). Available at SSRN: https://ssrn.com/abstract=4698258 or http://dx.doi.org/10.2139/ssrn.4698258
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