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Sustainable Finance I: Foundations of ESG Investing (INAF 6690)

Homework Assignment 2

Due: April 21, 2025 by 4pm EST.

Please note:

•     Do the homework on your own or in a 3-student team.

•     Please include relevant figures and tables in your homework writeup, and please cite all references.

•     Submit your answers through the “Assignments” tab on Courseworks. You need onIy submit one copy of the assignment per group. Indicate on the cover page the names of the people in the group.

•     Make sure that the main writeup you submit is formatted for easy printing.

In this homework we will analyze company-level carbon emissions with the goal of building “green” portfoIios. We have discussed ESG data at length in our class, and this will also be your chance to get hands-on experience with a variety of climate-related data at the level of individual companies. Working with data is often messy, and the assignment is designed to expose you to some of such challenges, for example imputing missing data or merging with information you will need to obtain from external sources. You are free to use any software package of your choice — but you also can complete the homework entirely in Excel.

1.   There are a range of “standard” measures of climate exposure (e.g., carbon intensity, carbon emissions, scope 1,2,3 etc.), many of which we have/will have discussed in class. Propose an  alternative measure of a company’s the environmental footprint and explain how an analyst  may be collect the requisite data to potentially use it in practice.  Ideally come up with your own idea here — if not, please review climate measures from ESG data vendors and discuss an example measure other than the ones we covered in class.

2.   The ESG dataset provided for this homework (homework 2 data.xlsx) gives you a realistic example of what such data looks like in practice.  Notice that various carbon emissions metrics are missing for some firms. Explain how you are going to deal with the missing data carbon intensity data (do not worry about other missing data) and adjust the data accordingly.

Notice: this will affect your estimates in the next parts of the assignment. If you have no ideas as to how to impute the missing observations, simply delete the rows with missing carbon intensity data. This will cost you points for this part of the homework, but you can still get full score for the subsequent questions.

3.   For this part of the exercise) we wiII work with scope 1+2 (you’II need to sum up scope 1 and scope 2 data to arrive at this variable) and scope 3 emissions. Calculate the mean and standard deviation of carbon intensity, carbon emissions in tons, and ESG and E scores within each sector. What conclusions can you draw? Are the results in line with what you would expect?

(Hint: To do the merge, you can use Excel’s VLOOKUP function, or you can do this in another piece of software such as Stata. In principle you could do this manually as well, but frankly that’s a waste of time: learning how to use VLOOKUP will be faster and you’ll gain a useful skill in the process.)

9.   Climate exposure and carbon emissions are some of the inputs into MSCI Environmental scores. Estimate the correlation between the scope 1+2 carbon intensities and each firm's Environmental pillar score. Also look at MSCI E scores for companies with/without SBTi commitments. Comment for the patterns you see.