Investors might be measuring climate risk at some companies all wrong

New study shows indirect emissions from customers can be just as big a risk to companies who otherwise look clean

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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) — Ready for today’s climate finance riddle? How can a company with a zero net carbon footprint nevertheless have huge climate-related investment risk?

The answer: If the company’s largest customers are oil companies.

This riddle captures a fundamental challenge that investors face when trying to reduce their exposure to climate-related risks.

Traditional approaches to measuring climate risks have found it difficult to incorporate the indirect exposure a company faces when its suppliers or customers are themselves major producers of GHG emissions.

In fact, many of those traditional approaches end up simply ignoring those indirect risks. But indirect exposure is still exposure, even if it is difficult to measure.