Research and Insights

Analyzing Climate Solutions Investments

It’s time to move beyond carbon avoidance. State Street Associates takes a look at investing in firms with “pure-play” climate solutions.

February 2022

An increasing number of companies are providing products and services that help reduce carbon emissions in the economy. 

We developed a methodology to identify “pure-play” climate solutions companies and analyzed the portfolios constructed from these companies. Our study reveals several insights. First, emerging markets have a significant presence in our sample, accounting for nearly half of the represented companies. Second, a portfolio of climate solutions companies exhibits higher revenue growth, higher investments in research and development, and lower profitability than the market portfolio. Third, climate solutions portfolios have outperformed the market in the most recent years. The  returns on these portfolios are uncorrelated with the returns of portfolios that seek to reduce carbon emissions by underweighting high-carbon companies.

The study provides investors examples of how to gain access to climate opportunities by building portfolios from pure-play climate solutions companies, as decarbonization is likely to accelerate in the coming decades.