Carbon-adjusted portfolio selection: A counterfactual analysis

We investigate investor behavior in a counterfactual scenario where shareholders are subject to a carbon tax, and we compare the structure and performance of the carbon-adjusted portfolio to those of the mean-variance portfolio. Results suggest that applying such a tax does not lead to significant changes in portfolio structure. The impact on performance becomes relatively noticeable only if the tax is particularly stringent. Therefore, implementing a carbon tax could be justified, as it may support decarbonization, at least partially, without significantly affecting investors' economic outcomes.