Climate Solutions Investments

Abstract

An increasing number of companies are providing products and services that help reduce carbon emissions in the economy. The authors develop a methodology to identify those companies and create a sample of publicly listed climate solutions companies, allowing the authors to study their geographic composition, accounting fundamentals, valuation ratios, and stock performance over time. The sample is equally split between developed and emerging markets, with a significant number of companies located in China. A portfolio of climate solutions companies exhibits higher revenue growth, higher investments in research and development and talent, and lower profitability margin. Portfolio returns are higher for solutions in energy, fuels, battery, and transportation themes and exhibit very little correlation with the returns of portfolios that seek to reduce their carbon emissions by underweighting high-carbon-emission companies, suggesting that climate solutions portfolios are distinct from low-carbon-emission indexes.