Outside the Box: Investors have been pouring money into companies promising climate-change solutions. Here’s how to spot the winners.

by | Oct 5, 2022 | Stock Market

Financial market volatility is up, major stock indices are down, and investors are suffering losses in almost every asset major class. Though the situation seems dire, it may be a good time to remind ourselves that investing for the long haul has always been the best strategy. Farsighted investors are increasingly focused on climate change, the ultimate long-term trend. 

Investing in businesses that reduce emissions of greenhouse gases has never been more popular than it is now. Venture capital flows into climate tech reached new highs in both 2021 and the first half of 2022, and in the public equity markets investors are funding climate-themed companies. BlackRock’s Carbon Transition Readiness ETF
for example, was the most successful launch in the ETF industry’s three-decade history.  We’ve seen this trend before. In 2007, investors grew excited about investing in climate technologies, pouring capital into early-stage venture funds. It did not work out well. Joe Dear, the former chief investment officer of pension-fund giant CalPERS, summed up the experience of many investors during that time when he described green investments as “a noble way to lose money.” Which raises the question — is the surge of climate focused investments temporary, or is a more fundamental transition underway?  Predicting markets is a fool’s errand, yet several important trends will almost certainly drive growth in climate investments for decades. Every investor should be aware of these trends, both for their own benefit and that of the planet. The first and most widely reported trend is the rising risk of a changing climate. Just this year alone, extreme heat in Oregon, wildfires in California, flooding in Miami, and violent storms in Texas have raised awareness of the implications of a warming planet. But for most businesses and investors, physical risks are relatively low — at least for now. The real impact is felt by businesses among their consumers, employees, and governments. Companies are increasingly finding that their best employees are pushing them to take action on climate change. Consumers are showing a marked preference for buying products from companies that pass their climate test. Changing social norms have convinced more than 5,000 of the world’s largest companies to make pledges to reduce greenhouse gas emissions to zero.  Governments are also responding to these trends. Government action is evident at the federal level with the recent passa …

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