Climate risk trading and the green growth vs oil value strategy

A long-short portfolio makes sense, but only in if the market gets rational about climate

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(Mark Hulbert, an author and longtime investment columnist, is the founder of the Hulbert Financial Digest; his Hulbert Ratings audits investment newsletter returns.)

CHAPEL HILL, N.C. (Callaway Climate Insights) — A new study reveals why we’ve had so much difficulty over the years forecasting whether clean-energy stocks in the future will do better or worse than fossil-fuel stocks — knowing, in other words, if investors can do well by doing good and whether the stocks of polluting companies will be market laggards in the future.

The source of the difficulty, according to the study’s authors, is a curiosity of the stocks that are in the clean energy (“green”) and fossil fuel (“brown”) categories. The vast majority of brown companies are so-called “value” stocks, while most green firms fall in the “growth” camp.

Therefore, when the value style is beating growth, as is not infrequently the case, commentators may conclude that brown beats green — even though this has nothing to do with the costs of adjusting to a warmer climate. Just the opposite will be the case when growth is beating value.