Climate change to set pace for investing

Herald Sun
Friday 19/10/2007 Page: 85

CLIMATE change is an "economic force" that will drive a wave of investment opportunities and financial product innovation. A report by global investment bank Deutsche Bank says there will be a shift away from a carbon-based economy in the years ahead. "Climate change is an economic force which impacts on many parts of the economy," report author and Deutsche Bank Asset Management head climate change strategist Mark Fulton said. "Whether you believe the science or not, investible markets are being created by governments and these investible markets are getting significant and we think it will grow significantly over the next 20 to 30 years."

The market for low-carbon energy products is expected to reach about $US500 billion ($A559.3 billion) a year by 2050, according to the Stern Review on climate change. New York-based Mr Fulton said clean energy, or renewable markets - including geothermal, solar, wind and water power are already quite large. "This leads us to our four pillars of climate change investments that we think you need to understand in order to be successful in climate change investments," he said.

These four pillars include understanding the opportunities created by government regulation, carbon trading markets, corporate-related activity and the rise of new technologies. Deutsche Bank's asset management business this month launched the DWS Global Climate Change Fund in Australia. The fund has been around since 2006 globally, and invests in companies taking steps to adapt to or mitigate the impact of climate change. These include Evergreen Energy Inc, which makes technology to create cleaner and more affordable coal-based energy, and filtration company Donaldson Company.

The fund has just under 6 billion ($A9.6 billion) in assets under management and a portfolio that includes some 1000 securities, with an "alpha pool" of about 400 companies. Investments are limited to companies with a minimum market capitalisation of 200 million ($A318.3 million) and positive cash flows and earnings. There are no Australian companies in the fund so far.

Deutsche Asset Management investment specialist Rebecca Jacques said while there was no particular regional bias, the portfolio did have a large exposure to the US. "There are no limits as far as exposure," she said, referring to where the fund could invest. About 10 per cent of its holdings are exposed to Germany, and other areas include Britain, France, Spain, the Netherlands and Japan. Ms Jacques said most of the fund participants are retail investors, who work with financial advisers. We tend to focus on more technical investors, who are interested and know how to play out Alpha sources in the investment arena," she said.

About 50 per cent of the portfolio is aimed at the clean technology sector, although that allocation could change. The Climate Change Fund has a minimum investment of $25,000. Deutsche Bank's global head of asset management Kevin Parker said he expected to see growing opportunities in sectors like renewable energy, water and agribusiness. We believe climate change will be an important consideration for investment decisions," he said.

The Deutsche Bank report, "Investing in Climate Change - An Asset Management Perspective", was released yesterday.