Investing in low-carbon commodities can boost returns by 22%

Investing in low-carbon metals and agricultural commodities can boost returns by up to 22%, according to new research from emlyon business school.

Investing in these commodities can also reduce a portfolio’s carbon footprint, combining stronger returns with lower environmental impact. With the researchers stating that gold and silver in particular are both much lower carbon investments than other metals.

The findings come from research by Guillaume Coqueret, Professor of Finance and Data Science at emlyon business school, alongside Bertrand Travin, also a professor at emlyon business school, and Yuxin Zhou, PhD Candidate at emlyon business school & Université Lyon.

The researchers aimed to understand the impact of investing in green commodities, as previous studies have largely focused on green-related companies rather than commodities.

They measured the greenhouse gas emissions and water consumption of these commodities over a set period, comparing them with traditional commodities. Investment returns over the same period were then analysed to assess both environmental and financial performance.

The researchers found shifting part of a portfolio toward low-carbon commodities does not hurt returns and can improve risk-adjusted performance. When low-carbon commodities represent 20 percent of a portfolio, investor welfare - measured by certainty equivalent returns - can rise by up to 22 percent.

A portfolio weighted toward green agricultural commodities cuts greenhouse gas emissions by 50 percent compared with a standard commodities portfolio, while low-carbon metals can reduce emissions by up to 80%.

Combined with green stocks and bonds, these commodities can significantly shrink a portfolio’s carbon footprint while improving diversification and performance.

“Our study shows that sustainable commodities can be a win-win: better for the planet and better for investors,” says Professor Coqueret told That's Business.

“Investors can improve returns and reduce emissions at the same time, without compromising performance.”

The research also found that sustainability is not yet priced into commodity markets, meaning green commodities do not automatically cost more or yield less, creating an opportunity for investors to align financial and environmental goals.

“By including low-carbon commodities in portfolios, investors can encourage producers to adopt greener practices while improving their own returns,” adds Professor Travin.

The findings highlight the untapped potential of sustainable commodity investing, offering a pathway to stronger financial performance and a smaller environmental footprint. For portfolio managers, investing in these commodities makes sense both financially and environmentally.

https://em-lyon.com/en