Why investing in green companies could be making climate change worse

New study shows small changes in polluting companies' emission reductions yield far greater benefit to environment

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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) — Investors interested in mitigating climate change would do well to consider investing in the worst greenhouse gas emitters instead of those ranked best by the ESG rating services.

That’s the astonishing conclusion of a study that this week was accepted for publication in the Journal of Finance, one of the top academic journals. The research is titled “Counterproductive Sustainable Investing: The Impact Elasticity of Brown and Green Firms” and was conducted by Samuel Hartzmark of Boston College and Kelly Shue of Yale.

You might wonder how to square this new study’s findings with those of other studies I’ve reported on recently which found that investing in green firms reduced their cost of capital and thereby enabled them to undertake more green projects. The new study’s authors don’t take issue with those prior studies, but they find that investors potentially could get more bang for their buck by investing in brown companies.