The NY Times fumbles today in a piece by Paul Sullivan buried in the business section. In his piece Climate Change and Choosing Where to Invest , Mr. Sullivan mixes two different ideas and manages to mangle a potentially promising topic. Given the NY Times delight with behavioral economics, his starting point is that stock market investors are a sleepy lot who are unaware of emerging risks that could affect their portfolio's performance. He envisions that climate change poses two risks to investors;1.is that climate change will directly destroy assets as coastal real estate, properties in areas such as a future even hotter Phoenix become less desirable.Those who own shares in Exxon and other fossil fuel companies will suffer a large loss in asset value when new carbon taxes are phased in.Note the difference between these risks. The first speaks to how companies situated in different industries and located in different areas adapt to climate change risk. In my Climatopolis work, I have argued that self interested firms have strong incentives to anticipate these serious potential risks and to make investments to offset the damage. The net adaptation effect is that firms will not suffer much from climate change. For example, companies that rely on distant supply chains will build in redundancy into their supply networks and they will hold inventories of parts. These investments guarantee that storms do not disrupt the firm's production capabilities. Of course these investments are not costless, but they are 2nd order costs for a forward looking firm.The second risk focuses on the future of environmental policy and whether companies are "ahead of the curve" in responding to climate mitigation policies such as higher carbon taxes. Sullivan's piece focuses on the 2nd risk. It would be a more interesting piece if he focused on the first risk.The piece implicitly states that sophisticated investors can nudge Exxon and other fossil fuel companies into greening themselves by selling their portfolios today. Here is the implicit logic. The CEO of Exxon cares about his stock price. If this stock price declines, his stock options are less valuable and his board is more likely to fire him. If investors see that Exxon's main asset is gasoline sales and that this asset will increasingly face higher carbon taxes, then investors should be selling now depressing Exxon's stock price. This will incentivize Exxon's boss to "green" the company achieving the double bottom line goal of protecting the company and lowering its climate change impact. In this sense, Mr. Sullivan wants portfolio managers to be part of a vanguard punishing "social irresponsible" firms. He is frustrated that many share holders are not pursuing this agenda and he blames the absence of information for this.Typical investors are likely to counter that holding a % of their assets in dirty companies allows them to achieve a better point on their risk/return frontier and that they are too small to make a difference so they might as well as free ride. These investors may also be confident that the professionals who run Exxon have the right incentives to figure out how to navigate the regulatory waters. Exxon can lobby Republicans to block anti-carbon regulation and they can invest in cleaner fuels to make a deliberate transition to a lower fossil fuels economy.The author should brush up on the efficient markets hypothesis. Exxon's share price already reflects the market's best guess over where carbon pricing is heading. Only new news moves stock prices. Perhaps Mr. Sullivan rejects this theory and instead embraces a momentum model in which if a few investors sell off that this could set off a "bank run" reaction such that everyone sells the shares in a panic.Mr Sullivan is essentially saying that a "boycott" of Exxon and other fossil fuels companies is in the best interest of individual investors. For investors who seek to minimize their portfolio's risk subject to achieving a given level of return, this statement is false. If American investors started to sell their fossil fuel companies, I predict that Russian and Chinese investors would enter and buy these shares. Boycotts do not work unless all the major demanders are on board. Otherwise, there are incentives in the midst of a boycott to purchase the newly cheap product!In a simple model of investment under uncertainty, climate change will not impact the portfolio of investors who invest in forward looking diversified companies. What Mr. Sullivan's article is really about is trying to motivate Wall Street to "punish" dirty companies. Double bottom line investing is "sexy stuff" but one needs to think through the basic microeconomics.A final thought that I have blogged about in the past. Suppose that Exxon is aware that there will be a rising $100 carbon tax 50 years from now. Al Gore has claimed (in a 2014 WSJ piece) that this carbon pricing will lead to "stranded assets" and Exxon shareholders will suffer greatly. He needs to study his hotelling no arbitrage condition. Exxon will simply increase its extraction upfront to avoid this tax and the carbon emissions will occur earlier!