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Mark Nicholls

Mark Nicholls

Mark is a writer for Environmental Finance. Environmental Finance is the leading global publication covering the ever-increasing impact of environmental issues on the lending, insurance,…

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Positive Environment for Climate Related Investments

Positive Environment for Climate Related Investments

The outlook for climate change-related investments is brightening after a few years when “it’s been a pretty depressing place to work”, according to a leading analyst.

“From where I sit, things are looking a lot better than they have been,” said Meg Brown, climate change analyst at Citi in London, speaking at Responsible Investor’s Clean Investor 2011 conference yesterday. “The theme is coming back – the macro picture is there.”

She said that the science is firmly established, and climate change is one of the most widely understood scientific issues among the public globally, behind only “gravity and knowing smoking is bad for you”.

A global policy framework is in place, and she praised the “bottom-up, realistic and understandable” Copenhagen Accord, agreed in 2009. She said that agreement was preferable to the Kyoto Protocol, “which hasn’t worked”, as it allows countries to pledge their own climate targets, rather than requiring the negotiation of top-down emissions goals.

Most major economies now have climate change policies in place and, while “policy-makers will always change their minds on the local levels, the global policy framework is there”.

Moreover, the technological solutions to climate change, such as renewable energy, are for the most part proven. “The next challenge is financing it all – and that’s the most exciting bit,” she said.

Mark Fulton, global head of climate change research at Deutsche Bank Climate Change Advisors, also speaking at the conference, agreed that climate change is part of megatrend driven by population growth that will lead to resource scarcity and increasing pressure on environmental externalities, such as the climate. “It will generate huge investment return opportunities,” he said.

“It’s inevitable that the structures of economies become sustainable because we’re facing the biggest resource crunch for hundreds of years,” he said. “And it will be a pretty close run thing.”

Brown warned that the move to a low-carbon economy isn’t going to be cheap, and there is likely to be resistance from shareholders in utilities and similar companies in making substantial investments. “The equity markets won’t bear those costs” alone, she said.

However, she argued that “the burden will be shared” between the public and private sectors, and noted that industrialised governments are giving “disproportionate support” to carbon capture and storage and offshore wind. “Investors should take note.”

She also warned that investors should cast a critical eye over the support given by governments to low-carbon technologies. “If a policy looks too good to be true, it probably is,” referring to Spain’s solar sector, which has seen investors burnt by retroactive changes to the feed-in tariff regime.

She added that investors should be prepared to trade low-carbon assets, selling them if they become overvalued, and that “they shouldn’t get greedy … a lot of these are dull, infrastructure assets.”

By. Mark Nicholls

Source: Environmental Finance




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