Going green is rewarding: Clean energy deserves to be an asset class

Dr. Fahmy was awarded Internal Grant for Research funds to demonstrate the rewards of investing in green investments for both retail and institutional investors in the short-run and the long-run.

While the Paris Agreement and the recent climate crisis around the globe have increased investors' awareness of climate change risks, investors are still reluctant to consider green investments. Awareness is not enough to promote green investments to battle climate change. Investors need assurance that going green is not only a moral choice, but a rewarding one. In this paper, we demonstrate the rewards of investing in green investments for both retail and institutional investors in the short-run and the long-run. In particular, for institutional investors, we show that admitting clean energy as an asset class on its own in the asset allocation phase of the portfolio management process adds value to existing portfolios. As for retail investors, we demonstrate that rational investors with long-term buy-and-hold strategies and irrational investors, who tend to overreact in the short-run, are both better off investing in pure green or mixed portfolios. These findings promote the rewards of green investments; a stepping stone in a pathway strategy of battling climate change.