We develop an environmental macro-finance model to study how markets price transition and physical climate risks. When carbon taxes are below the social cost of carbon, raising them improves long-run welfare even as it reduces current output. Brown firms perform well in the ``bad economic states" when low taxes let climate damage worsen. This hedging value gives them lower required returns, reversing standard ESG predictions. The green-minus-brown required return can, however, switch sign depending on how policy and climate shocks interact. Strikingly, climate-concerned investors optimally hedge by holding brown stocks, while skeptics hedge with green. More broadly, private hedging motives can diverge from societal climate objectives.