{"id":38553,"date":"2023-08-04T17:46:38","date_gmt":"2023-08-04T21:46:38","guid":{"rendered":"https:\/\/test.greenmoney.com\/2025\/?p=38553"},"modified":"2023-08-09T00:31:20","modified_gmt":"2023-08-09T04:31:20","slug":"the-climate-pricing-gap","status":"publish","type":"post","link":"https:\/\/test.greenmoney.com\/2025\/the-climate-pricing-gap\/","title":{"rendered":"The Climate Pricing Gap"},"content":{"rendered":"
>> Back to Aug\/Sept 2023 Issue<\/a><\/div>\n
Above illustration by artist, Nicole Kelner<\/h5>\n

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Why the popularity of passive investing is making it harder for the market to price in climate risk\/opportunity.<\/em><\/h2>\n

In the year 2000, 12 percent of the assets in US equity funds<\/a> were passively managed. By 2021, over 50 percent of US equity fund assets<\/a> were held in passively managed ETFs and mutual funds.<\/p>\n

That is a massive jump in a short period of time. And it\u2019s not the short-term investors who are the major adopters of passive investing, it\u2019s the long-term investors.<\/p>\n

This phenomenon of long-term investors shifting from active market participants to passive public market followers has created a pricing gap.<\/p>\n

Historically, the stock market had both long- and short-term investors sending pricing signals, as more of those long-term investors have adopted passive investing strategies, movements in the market are increasingly being dictated by short-term investors. The near term noise is winning the day.<\/p>\n

The deep currents are being ignored.<\/p>\n

So, if you are a long-term investor like us, you are increasingly finding yourself with a \u201cwhen?\u201d <\/em>problem when it comes to passive investing. Our clients\u2019 time horizons are long, but the stock market\u2019s pricing mechanisms increasingly can only account for near term trends.<\/p>\n

And if you are a sustainable investor like us (and odds are that\u2019s the case if you\u2019re reading this), it might be time to start explaining this phenomenon to your clients more clearly. With so many long-term investors electing to follow, rather than lead, the stock market is not able to accurately price in the long-term risks and\/or opportunities of climate change.<\/p>\n

Electric cars present a pretty clear example:<\/h2>\n