Climate Solutions Investments

40 Pages Posted: 8 Feb 2022 Last revised: 11 Feb 2022

See all articles by Alexander Cheema-Fox

Alexander Cheema-Fox

State Street Associates

George Serafeim

Harvard Business School

Hui (Stacie) Wang

State Street Associates

Date Written: January 27, 2022

Abstract

An increasing number of companies are providing products and services that help reduce carbon emissions in the economy. We develop a methodology to identify those companies and create a sample of publicly listed climate solutions companies allowing us 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 more companies located in China rather than the US or the EU. A portfolio of climate solutions companies exhibits higher revenue growth, higher investments in research and development, and talent and lower profitability margin. The portfolio exhibits superior stock market performance since 2018, driven by solutions in energy, fuels, battery, and transportation. Finally, the portfolio’s returns 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 indices.

Keywords: climate change, decarbonization, climate solutions, innovation, carbon emissions, portfolio construction

Suggested Citation

Cheema-Fox, Alexander and Serafeim, George and Wang, Hui, Climate Solutions Investments (January 27, 2022). Harvard Business School Accounting & Management Unit Working Paper No. 22-054, Available at SSRN: https://ssrn.com/abstract=4027579 or http://dx.doi.org/10.2139/ssrn.4027579

Alexander Cheema-Fox

State Street Associates ( email )

140 Mount Auburn St
Cambridge, MA 02139
United States

George Serafeim (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States

HOME PAGE: http://www.hbs.edu/faculty/Pages/profile.aspx?facId=15705

Hui Wang

State Street Associates ( email )

140 Mt Auburn St
Cambridge, MA 02138
United States

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