A methodology to distinguish companies with “real” climate solutions

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In this note, Professor George Serafeim describes a new “Climate Solutions Investments” paper:

ESG is often viewed as a risk management tool. However, ESG is also about understanding where the world is going and investing in innovative, growing businesses that could provide profitable solutions to world’s challenges. In this new paper, we develop a methodology to identify companies providing solutions to decarbonize the economy (batteries, electric vehicles, renewables, plant based food and others) and create a sample of about 600 publicly listed climate solutions companies allowing us to study their geographic composition, accounting fundamentals, valuation ratios, and stock performance over time. Several findings emerge but two key ones are the large number of climate solutions companies in emerging markets and the fact that investors should not confuse low carbon exposure portfolios with climate solutions portfolios.