How to profit from global warming

coal op ed

Here's a dirty little secret: companies that are cleaning up their carbon act are also cleaning up in the stock market.

There are lots of ideological reasons to invest in companies committed to being a part of the solution to climate change. But there's also a greedy reason.

Companies that have been the best at improving their carbon efficiency since 2012 have dramatically outperformed the ones that have been the worst at it, according to a new report published on Wednesday by the world's largest asset manager BlackRock (BLK).

The report analyzed the stock market performance of the more than 1,850 companies that have entered into the Carbon Disclosure Project. It includes everyone from energy and auto companies like BP (BP) and General Motors (GM) to tech companies like IBM (IBM).

BlackRock, which manages nearly $5 trillion, analyzed the data to determine which companies did the best job of cutting their pollution relative to annual sales.

The 20% of companies best at slashing their carbon intensity beat the world stock market by almost 6%. The worst 20% of companies trailed the market by nearly 6%. That's a big difference.

"Sustainable investing is not a passing fad. This is not just about doing or feeling good," BlackRock wrote.

The report comes just ahead of next month's climate change summit in Paris and at a time when some large institutional investors and celebrities are divesting or considering getting out of fossil fuels.

The Rockefeller Brothers Fund, whose fortune was built on Big Oil, recently told CNNMoney its surprising decision last year to no longer invest in fossil fuels hasn't hurt its performance at all.

Related: Dumping fossil fuels was great move for Rockefeller Brothers

Focus on pace of change

But ordinary investors may not need to take such a black-and-white approach if they do not want to. BlackRock found that rather than simply buying the cleanest stocks and dumping the dirtiest, investors should pay close attention to the rate of change.

"It is arguably better to focus on the companies that are best in class -- even if they happen to be within polluting industries," the report said.

To be sure, BlackRock cautions that this is not a perfect science. The research focused on a relatively small pool of companies. Plus the data was self-reported, which the report acknowledges "leaves room for fudging the numbers."

Related: Climate change will bring deadly heat to the Middle East

Climate change focus signals strong governance

Recognition of climate change as an issue to deal with is a sign of strong corporate governance in general.

"We have a very strong view: companies with a good environmental, social and governance record have good governance overall (which) equals good long-term returns," said Ewen Cameron Watt, chief investment strategist of the BlackRock Investment Institute.

Related: Pope Francis wants climate action. But what's the cost?

It's something big-time investors are increasingly paying attention to.

Last year a group of institutional investors, including BlackRock, that together manage $24 trillion in assets pledged to manage climate change risk as part of their fiduciary duty to clients.

BlackRock is hoping to glean more investing tips from those disclosures. The asset manager is sifting through new data on companies' water management to see how it correlates to stock market performance.

Related: Leonardo DiCaprio breaks up with Big Oil

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