On Friday, hundreds of thousands of young people—and maybe a few adults as well—skipped out on what they were supposed to be doing for a Global Climate Strike. And whether we agree with their goals, which can seem unfocused and unrealistic at times, we need to pay attention because the stock market is listening.
In a report released this past week, Deutsche Bank quantified just how much climate change matters. According to its research, stocks that reported positive climate-change news outperformed the
MSCI World Index
by 0.8 percentage point a year over the 12-year period for which the bank has data. The companies with negative climate change news, on the other hand, underperformed by 0.3 percentage point.
Companies with improving climate headlines do even better, outperforming the MSCI World Index by 1.4 percentage points. The Deutsche Bank team’s conclusion: “Small climate change news makes a big difference.”
Sector and overall direction also have an impact on how stocks respond to climate-change news. The stocks that are most impacted by company-specific climate-change news aren’t from sectors like energy, materials, and utilities, but technology, consumer staples, and health care instead. Investors also tend to ignore negative climate-change news when markets are heading lower—perhaps because they have more immediate worries.
“[Equity] investors are more sensitive to negative corporate environmental news when times are good, but are less discerning when the wider market is experiencing turbulence,” the authors observe.
Still, the impact of climate-change news on the market should continue to grow as more money is dedicated to environmental, social, and governance, or ESG, investing. “It seems certain that positive and negative share price effect…will amplify themselves in the future,” Deutsche Bank argues.
Wall Street clearly doesn’t want to be left behind (or maybe it just sees another market for its research?). Reports on climate change appear almost daily, and they touch on everything from broad sectors—Morgan Stanley’s “deep dive into decarbonization” at utilities notes that
(AES) “stand out across our North American Utilities coverage”—to narrower notes, such as Jefferies’ observation that “global climate change presents the [property and casualty insurance] sector with material increases in risk.”
In the Trader column, results are all that matter. That’s why we pay attention to all the different ways investors are trying to get an edge in the market—from buying cheap stocks to buying fast-growing ones, and from buying momentum stocks to making contrarian bets, it’s all fair game. Now, the market is telling us that climate change matters. We can either listen—or just wait for the next bear market.
Write to Ben Levisohn at Ben.Levisohn@barrons.com
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