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12 Harv. Bus. L. Rev. Online 1 (2021-2022)

handle is hein.journals/hblro12 and id is 1 raw text is: HARYARD BUSINESS LAW REVIEW BROWN ASSETS FOR THE PRUDENT INVESTOR Alon Brav and J.B. Heaton* Recommended Citation: Alon Brav & J.B. Heaton, Brown Assets for the Prudent Investor, 12 HARv. BUS. REV. L. ONLINE, art. 2, 2021, at 1. Abstract Most commentary on climate-themed investment treats climate change as a one-way risk to brown assets from a hoped-for transition to a low-carbon economy. But the converse holds as well. Brown assets could turn out to be highly valuable if the world fails to transition out of the high-carbon economy. This is true both because sentiment for green assets may cause brown assets to be underpriced (generating higher expected returns) and because brown assets may provide a valuable hedge against the costs of climate change in a world that failed to transition to a low- carbon economy. Given the lack of progress to date toward transition to a low-carbon economy, we argue that institutional investors subject to fiduciary duties of prudent investment (including the duty to diversify) cannot yet justify divestment from brown assets. ? Peterjohn-Richards Professor of Finance, Fuqua School of Business, Duke University, ECGI, and National Bureau of Economic Research. * Managing Member, One Hat Research LLC. For helpful comments, we thank Ashish Arora, Doron Levit, Dorothy Lund, Cam Harvey, Elizabeth Pollman, Bernie Sharfman, Dan Vermeer, and Jonathan Zandberg. 1

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