Much has been made of whether and how the stock market can meaningfully support climate action. Because most of the transactions occur in the secondary market, the buying and selling of shares of listed companies appear rather removed from the real economy where tangible decarbonization takes place.
While greenhouse gas emissions reduction is more traceable with a venture capital (VC) investment in a climate solutions company or a bank loan for a climate-friendly project or product, the stock market is not a neutral bystander in the climate crisis.
When it comes to causing harm, listed equities continue to prop up the fossil fuel and deforestation industries by providing a means to make money from injustice. For example, in the first two weeks after the 2022 invasion of Ukraine, the prices of oil, coal and gas increased by roughly 40 percent, 130 percent and 180 percent in Europe, respectively; this enabled fossil fuel stock market investors to benefit from the appreciation of stock prices and potentially higher dividends.
On the climate positive side, the existence of the stock market increases the number and quality of climate solutions companies. Because VC investors look forward to exit events, whereby they liquidate their equity position in a startup to achieve returns, the initial public offering (IPO) is one of the main ways to attract such investors. The absence of a stock market would therefore limit the universe of new climate companies, as fewer VC funds would be willing to invest in climate startups. The stock market also increases the opportunities for climate solutions to scale by increasing investment during an IPO and signaling to other forms of capital, such as bank lending, that a company is creditworthy. This is why facilitating capital formation, one of the three core mandates of the Securities and Exchange Commission (SEC), is vital for climate action.
Carbon Collective, an investment product developer and asset manager that allows retirement accounts, brokerage accounts and trusts to invest in climate-friendly stock and bond portfolios, created the Carbon Collective Climate Solutions U.S. Equities ETF. The underlying research to create the exchange-traded fund uses the Project Drawdown solution list and is publicly available and searchable via a database. In total, the U.S. climate stock list has 186 companies that pass an exclusionary filter, meaning that the companies generate at least half of their revenue from climate solutions, and 129 climate pure play companies. The existence of such an ETF, and the fact that the universe of investable opportunities is rich, paints a picture that the U.S. market is somewhat active in scaling climate solutions.
The trouble is most humans are not U.S.-based, and most economic activity takes place outside of the U.S. If the world is to sufficiently invest in a viable planet, investors and lenders will have to back climate solutions companies globally, notably where most people live — the Global South, also known as the Global Majority.
In its recent database update, Carbon Collective has added climate companies listed in the Global Majority. Although not yet covering the entire world, the climate solutions stocks database now includes three additional regions: the African Union (AU), the Association of Southeast Asian Nations (ASEAN) and the Community of Latin American and Caribbean States (CELAC). These economic zones represent $3 trillion, $3.3 trillion, and $7 trillion in annual GDP, respectively and in total represent a population of 2.7 billion.
If the world is to sufficiently invest in a viable planet, investors and lenders will have to back climate solutions companies globally, notably where most people live — the Global South, also known as the Global Majority.
The companies listed on the AU, ASEAN and CELAC stock exchanges were 1,034, 3,373, and 1,611, respectively; in the U.S., there is a universe of 4,500 companies. The companies in the selected Global Majority regions were also tilted toward basic manufacturing, wi
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