FEW people place great store in the ability of negotiators to reach a meaningful deal during the conference on climate change that began in Paris this week. One problem is that some politicians refuse to admit the problem is real. But those who work in the financial markets have to take the issue seriously: ever since being hit by losses from Hurricane Andrew in 1992, insurance companies have been modelling climate risks. Bank of America Merrill Lynch (BAML) just weighed in with a 332-page report on their economic and financial impact.

A changing climate, and the eventual efforts of governments (however reluctant) to deal with it, could have a big impact on investors’ returns. Companies that produce or use large amounts of fossil fuels will face higher taxes and regulatory burdens. Some energy producers may find it impossible to exploit their known reserves, and be left with “stranded assets”—deposits of oil and coal that have to be left in the ground. Other industries could be affected by the economic damage caused by more extreme weather—storms, floods, heatwaves and droughts. “Investors have to worry about a material and unexpected loss of capital,” says Ewen Cameron Watt, chief investment strategist at BlackRock, a fund-management group.

Moody’s, a rating agency, has tried to quantify the impact for bond markets. It puts three industries (deregulated power generation, coal mining and coal terminals) at “immediate and elevated” risk from climate change; between them, these sectors have $512 billion in rated debt.

Another eight sectors (including carmakers, miners and oil refiners), with $1.5 trillion of rated debt, have “emerging, elevated” risk. A further 18, with $7 trillion of debt, face risks over the medium term, defined as more than five years ahead. That leaves the vast majority of the corporate-bond market, encompassing $59 trillion of rated debt, in the low-risk category.

Broadly speaking, investors who are concerned about the issue follow three approaches. The first is an outright boycott of the dirtiest industries. The latest example is Allianz, a German insurance group, which said it would no longer invest in companies that “derive more than 30% of revenue from coal mining or generate over 30% of their energy from coal.” The result will be a divestment of €225m ($238m) in the shares of coal groups; Allianz will continue to hold its €3.9 billion of bonds in such companies, but not buy any more. More than 400 investment institutions have made similar commitments, according to 350.org, a green lobby group.

The second approach is to maintain stakes in carbon-producing firms but to try to engage with their management in an attempt to change their behaviour. Research by BlackRock shows that companies that have reduced their carbon intensity (defined as emissions divided by sales) have outperformed the market since March 2012, when proper data on corporate emissions first began to be collected.

A third approach is to skew portfolios towards the companies that will do well out of attempts to curb carbon emissions. Some low-energy technologies have already had success. Light-emitting diode (LED) bulbs consume less than 15% of the energy of incandescent bulbs. They had just 1% of the lighting market in 2010. This year their market share is 28%; Goldman Sachs forecasts it will be 95% by 2025. Then there is renewable energy. So far, it generates only a small proportion of global power. But BAML says that, globally, wind and solar power made up nearly half of the additional energy-generating capacity installed in 2014 and may comprise 70-80% of new capacity between now and 2030.

There is little evidence that following these strategies has had a big positive impact on returns so far. Standard & Poor’s has identified the 100 highest and lowest emitters in its index of 1,200 global stocks. As the chart shows, the highest emitters have done marginally better since 1999.

That reflects the strong performance of energy companies during the period of rising commodity prices; in recent years, as the oil price has dropped, the low emitters have caught up. But falling energy prices have also hit the shares of renewable energy producers, many of which need high power prices to be competitive: over the past five years, S&P’s Global Clean Energy Index has suffered an annual return of -9%.

Picking the right strategy will not be easy, therefore. But all investments have their pitfalls. Ignoring the climate issue altogether looks like the biggest risk of all.