Investors need a substantial investment story to buy into a mutual fund, and there can be few developing sectors more compelling than the fight against global warming. Even if you believe the scientists' findings are flawed, the arguments they advance are compelling. So too are the financial consequences. The world's largest insurer, Swiss Re, for example, estimates that annual damages from climate change could reach $150bn in less than 10 years.
Other big fund managers are equally concerned. The giant American International Group (AIG) now has a formal climate change policy and has pledged to increase its investment in companies, projects and assets that help to reduce or limit greenhouse gas emissions. There is plenty of scope for such measures. It is estimated that for every inhabitant on Earth an average of about three tonnes of CO2 is currently produced from burning fossil fuels each year. AIG supports its investment argument by recognising the scientific consensus on climate change as an indisputable fact. Indeed, the insurer now has an Office of Environmental and Climate Change, headed by Alice LeBlanc, a former senior vice-president of the Chicago Climate Exchange and senior economist at the Environmental Defence Fund. She says: "AIG recognises the scientific consensus that climate change is a reality and is likely in large part the result of human activities that have led to increasing concentrations of greenhouse gases in the earth's atmosphere." The AIG policy document continues: "At the same time, market-based environmental policies and potential new investments provide business opportunities for AIG to address the problem."
The giant Rabobank is another to see the investment virtues of this emerging mutual fund sector. The bank, which published a report last autumn entitled Financing and the Emerging Bio-energy Market, now has the Robeco Clean Tech Private Equity II fund. Hard on the heels of Rabobank is the $250m Clean Tech Fund. This is a joint venture between the Abu Dhabi Future Energy Company, Credit Suisse and the UK's Consensus Business Group (CBG). The new fund will invest in companies promising clean and sustainable energy technologies. The Abu Dhabi government has invested $100m with Credit Suisse and CBG putting up $100m and $50m respectively.
But it's not just the giants who are keen to establish a presence in this new investment market. Last year Mark Shorrock raised £44.5m (€66m) for his new Guernsey-registered closed-ended investment fund Low Carbon Accelerator whose shares now trade on London's junior AIM market. The chief executive and founder of the Low Carbon Accelerator fund says: "This is an investment theme that is now becoming well understood almost universally. We had a very good response when we did our presentations and there was a strong indication that they'd like us to follow this up, which we may do this year...There's recognition of the facts now, with oil and gas prices at high levels already and trending upwards, with scant resources getting scarcer. Companies working on viable alternatives are very attractive and what makes them even more so is that many of them are still under the main investment radar." Shorrock says the fund is looking at companies to invest in from the Scandinavian countries, Germany and Spain as well as the UK and further afield in California. He points out that in some countries, notably Germany and Spain, there are fiscal incentives to produce, use and even sell on surplus alternative sources of energy, such as solar and wind. The sectors the Low Carbon managers will look at initially include buildings and related products, green fuels, energy efficiency and energy generation. In the two years prior to launch they have built a pipeline of more than 50 potential investments. Even without tax breaks to encourage greater use of alternative energy sources, Shorrock says: "The demand for low-carbon products and services worldwide is growing rapidly and that will intensify."
Richard Burrett, the managing director for sustainable development at the Dutch investment bank ABN Amro, which acted as broker to the Low Carbon Accelerator fund, sums up the investment argument for the fledgling sector thus: "Climate change is an economic challenge as well as an environmental one, and avoiding the more dangerous impacts will require huge investment in areas such as low-carbon technology." |
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