Portfolio analysis

Pricing the transition: portfolio optimisation in Euro credit

Written by Johan Jarnmo & Kamesh Korangi

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In this paper, we explore whether a diversified euro investment-grade book can improve its transition profile without changing how it behaves as a credit portfolio. Using AFII’s Co₂liseum transition analytics, which combine historical emissions, forward-looking commitments and targets adjustments into a single 1-to-9 score, we build a transition-optimised portfolio and hold its duration, spread, and sector exposure close to the parent Euro IG index.

The central finding is that the optimisation costs little. Over the year to August 2026, the Co₂liseum portfolio maintained a lower – and therefore better – transition score of 1.75 compared to the index’s 2.96, while returning 1.59% gross, matching the benchmark to within a few basis points (before transaction costs). 

We set both against a live market Paris-Aligned Benchmark (PAB) ETF, and the comparison showed the two portfolios are not simply greener or less green than each other, but optimised on different objectives. The PAB leads on current emissions, cutting the index’s intensity by 56%; the Co₂liseum book leads on forward commitments, carrying the lowest projected carbon intensity to 2050 and a heavier weight of issuers with validated net-zero targets.

The practical takeaway is that meaningful transition improvement does not require large sector exclusions or a material sacrifice in portfolio characteristics — the harder problem is selecting the right issuers within sectors, and deciding which transition data is worth paying to incorporate.

About the authors

Johan Jarnmo

Johan Jarnmo

Associate Director, Portfolio Strategy

Johan develops tools and analytics that help fixed income investors invest in a climate- and nature-positive way, including AFII’s portfolio tools Co₂liseum and FIONA. He previously worked in Deloitte’s Risk Advisory practice.

Kamesh Korangi

Kamesh Korangi

Managing Director, Head of Portfolio Strategy

Kamesh is an experienced credit derivatives and bond trader who leads the development of AFII’s portfolio analytics tool, Co₂liseum. He was previously a market maker and credit analyst at NatWest Markets, and holds a PhD in deep learning.

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