CFA InstituteResearchPolicy Center3D Investing:Implicationsfor Net zero3D INVESTING:IMPLICATIONSFOR NET ZEROClint HowardQuantitative Researcher,Robeco,Rotterdam,the NetherlandsMike ChenHead of Next Gen Research,Robeco,Rotterdam,the NetherlandsTraditional mean-variance portfolio optimization is based on the premisethat investors care only about risk and return.Some investors,however,also have nonfinancial objectives,such as sustainability goals.Central tothese goals,such as working toward net-zero emissions,is the question ofhow to incorporate such objectives into an investor's portfolio.We show howan extended mean-variance-sustainability optimization can incorporatesustainability goals into a portfolio,particularly aligning the portfolio withthe net-zero transition set out in the Paris Agreement.Importantly,wecompare various methods for integrating sustainability goals in investorportfolios and highlight the implications of such approaches on investoroutcomesIntroductionNumerous approaches have challenged the standard risk-and-return portfolioframework.All of them focus on making investment decisions based onobjectives that are not strictly risk or return based,such as impact investing,socially responsible investing (SRI),or environmental,social,and corporategovernance(ESG)investing.Accordingly,investment practice has evolved toincorporate sustainability objectives into the investment problem,includingmetrics related to carbon footprint,ESG characteristics,and sustainabilitydevelopment goals(SDGs).In this chapter,we explore potential applications andimplications of the 3D investing framework from Blitz,Chen,Howard,and Lohre(2024)in the context of net-zero transition alignment,as outlined in the ParisAgreement,adopted at the UN Climate Change Conference(COP21)in Paris on12 December 2015.The Paris Agreement is a landmark treaty in which 195 nations committed tolimit global temperature rise this century to less than 2C above preindustriallevels and pursue efforts to target an increase of less than 1.5C.In 2018,the Intergovernmental Panel on Climate Change(IPCC)stated that carbonemissions need to reach net-zero neutrality by 2050 to limit global warmingto 1.5C(IPCC 2018).Achieving these ambitious climate and decarbonizationAuthors note:This chapter is based on the article "3DInvesting:Jointly Optimizing Return,Risk,and Sustainability'potential net-zero implications and applications of the original article.The views expressed herein are notnecessarily shared by Robeco or its subsidiaries.2024 CFA Institute.All rights reserved.1