Gold is a well-known diversifier of financial risk with a long history as a physical asset. This paper analyzes whether gold provides additional environmental benefits in the portfolio context. We show that the addition of gold to a diversified equity portfolio does not only enhance the risk-return relationship but also its sustainability by reducing the portfolio’s carbon emissions. If carbon emissions are fully accounted for at the production (firm) level, physical gold holdings have zero CO2 emissions. Even if CO2 emissions are fully assigned to physical gold holdings, gold becomes a CO2 diversifier if held over longer periods. Our study highlights the critical role of physical assets and the investment horizon in the sustainability analysis of portfolios.

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