Climate Shocks and Green Returns

New research examines the relationship between climate change-related events and returns on green investment, and why returns for green stocks might lag those of brown.
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At first look it would seem to make sense that, as climate concerns grow, green investments would outperform investments in dirty industries. To put this into an energy context, as policymakers require more renewable energy to be deployed, and as investors flock to companies with low climate impacts and risks, the value of those companies would substantially increase, rewarding investors through higher returns.

Yet recent research suggests that this assumption may not be true. Or, at least, that the story isn’t as clear cut as one might intuitively expect.

Luke Taylor, a professor of finance at the Wharton School, explores the drivers of green returns. In new research, Taylor and coauthors look at the past decade of returns on ESG portfolios, and at how environmental policies, and investor demand for all things green, combined to influence returns on green stocks.

Luke Taylor is a professor of finance at the Wharton School at the University of Pennsylvania. His recent research paper is “Dissecting Green Returns.”

Energy Policy Now is produced by The Kleinman Center for Energy Policy at the University of Pennsylvania. For all things energy policy, visit kleinmanenergy.upenn.edu

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