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BOSTON — Investing in companies that support a transition to a low-carbon economy, even under the current U.S. president, is more popular than some may think, research at Harvard Business School (HBS) reveals.
An HBS working study says businesses that offer solutions to global warming generally exhibit lower stock returns and higher market valuation than those that don’t. The study, “Climate Solutions, Transition Risk, and Stock Returns,” was co-authored by George Serafeim, Shirley Lu and Simon Xu at HBS, and Edward J. Riedl of Boston University’s Questrom School of Business. The researchers hypothesize that hedging on these “high climate solutions” companies will drive up their value during periods when a climate transition is most likely.
“Events like the Trump election changed the probability that there will be carbon regulation, [therefore], the expected value of high climate solutions firms comes down,” HBS Professor Shirley Lu, a study co-author, said in an interview with The BiGS Fix. “On the other hand, there is realized transition risk, because there are countries that already have carbon pricing regulations and U.S. states have enacted carbon-related laws. Here, we see the profitability of climate solutions firms go up.”
There are clear contrasts between these two types of firms in many sectors, including utilities (Duke Energy, which still uses a substantial amount of coal versus AES, which does not) and the automotive industry (Ford Motor Company, which has not invested heavily in electric cars, versus General Motors, which has).
Why clean tech companies may be doing well
International markets are rich with opportunities for clean energy, according to Jeffries, a New York Investment bank, which anticipates a more global approach to energy transition investments this year.
“While U.S. investors have largely focused on the Inflation Reduction Act since its passage, significant decarbonization initiatives in countries such as Japan, China, India, United Arab Emirates, Saudi Arabia, and Brazil have been overlooked,” Aniket Shah, head of sustainability and transition strategy at Jefferies, wrote in a January article on the company’s website. “The firm expects global programs … to gain investor attention as U.S. enthusiasm slows during a political transition.”
The HBS research, which uses historical events to study the performance of equities, isn’t a predicter of future performance. It does, however, point to the value of hedging for mutual funds and private investment advisors.
“If you invest in a lot of companies that are high emitters, you will be hit hard if a policy like a carbon tax arrives in the future,” Lu said. “So, if you're an investor, you might want to not just hold a lot of companies with high greenhouse gas emissions, but also companies that sell climate solution products to help these companies reduce emissions, whose profit might go up in scenarios of the world where a carbon tax is introduced.”
Chad Spitler, CEO of Third Economy, an investment consultancy that aims to accelerate the sustainability of the economy, said that occasions when markets turn in favor of low climate solutions are effectively temporary changes.
“We know that the global economy and nations across the world are aligned, with a few exceptions, toward reducing carbon emissions,” Spitler told The BiGS Fix. “You have an upward trend, but you've got little dips in that trend as you go, and I really see that representing the course that we're on as it relates to renewable energy and climate solutions.”
Climate transition risks that influence investor actions
The HBS study identifies conditions that define a climate transition risk. Climate solution companies see greater success during periods where climate regulation is expected or there are unexpected increases in climate concerns.
For example, past events that triggered a market reaction due to climate transition risks include announcements of the Paris Agreement in 2015 and of the Inflation Reduction Act in 2022. The latter benefits climate solutions firms by allocating substantial funds to develop those solutions.
If the second Donald Trump presidency mirrors the first, prices for high climate solution companies will fall, and prices for big emitters will rise. But it isn’t always that simple.
As of mid-April 2025, the S&P Global Clean Energy Transition Index was down 2.96% and the broader S&P 500 Index was down 8.25% for the year, suggesting that investors were not giving up on high climate solutions businesses. Meanwhile the S&P Oil & Gas Exploration & Production Select Industry Index was down 19.27%, indicating weak support for fossil fuel equities.
These funds were all in negative territory largely because of broad tariffs imposed by the Trump administration. Analysts offer different views on what industries will be most harmed by the tariffs, with various supply chain and policy issues driving arguments over whether the tariffs will be most harmful to high or low climate solutions companies.
“Stock prices [of green companies] haven’t done well over the last few years, but in the real economy, clean is booming,” Shah told Bloomberg in March. “When sentiment around something is low, it’s a good time to be a buyer.”
Not all investors will agree, says Alexander MacKay, a professor of economics at the University of Virginia and a former HBS professor.
“In previous research, we found that investor disagreement about stock returns increased after the 2008 financial crisis and the onset of the COVID-19 pandemic,” MacKay told The BiGS Fix. “Investors can have different expectations about how profitable climate-oriented firms will be in the coming years, and we may be seeing an increase in disagreement among investors this year, which will show up in how they allocate their dollars.”
The Trump administration may have a chilling effect on companies that otherwise would aggressively tackle climate change, Spitler said: “People are more fearful to get out there and make themselves a target, so the level of caution is much more significant than it has been in the past.”
U.S. governors support clean energy
Enthusiasm for clean energy is not limited to other countries. Shortly after Trump’s January inauguration, a group of 24 primarily Democratic U.S. governors sent a letter to UN Climate Change Executive Secretary Simon Stiell, saying that they remain committed to the United States’ Paris Agreement goals, despite Trump’s announced withdrawal from the international climate accord.
The letter pledged that the states “will continue America’s work to achieve the goals of the Paris Agreement and slash climate pollution.” The letter noted that the states “have broad authority under the U.S. Constitution to protect our progress and advance the climate solutions we need.”
Several weeks later, in April, Trump signed an executive order in an attempt to block state climate change policies.