"'There is nothing so powerful, not all the armies of the world, as an idea whose time has come," says a web-site citing French Romantic poet Victor Hugo. Far from fronting a cultural institution, the site belongs to Low Carbon Accelerator, a green private equity fund headed by Mark Shorrock and Steve Mahon that recently listed on London's Alternative Investment Market. The fund aims to invest in businesses in the low-carbon sector, typically those that address carbon conservation (using less energy or renewable energy) carbon sequestration (carbon sinks) or carbon trading (in order to offset carbon emissions), and is a startling example of the rapidity with which London has emerged as a world centre for green business. Behind all such activity is a sympathetic and well-informed investor community, Europe's main commodity market, a congenial political climate and excellent capital markets, in particular the second market of the London Stock Exchange, the Alternative Investment Market (AIM).
Britain may have lagged behind Germany in reducing its carbon dioxide emissions, but Prime Minister Tony Blair and Chancellor of the Exchequer Gordon Brown have deliberately attempted to seize a leadership stance on climate change. The Carbon Disclosure Project (CDP), which asks companies to disclose their carbon emissions with a view to cutting them, is moving into its fifth year and is a British initiative. Now it has become global, and in CDP4 in 2006 the project attracted the support of 225 investment institutions globally, representing approximately €25bn of assets under management.
Whereas 72% of FT500 corporations disclosed data on their carbon emissions to CDP4, just 32% of the largest 200 German companies did so. The discrepancy, despite society-wide consciousness of green issues in Germany, might betray a more fundamental difference of attitude concerning the role of the private sector, as opposed to government, in mitigating climate change by cutting emissions of carbon dioxide. This certainly appears to be the case with France where the government sets the pace with a regulatory stance backed by fixed national tariffs on energy prices, and where the large nuclear energy sector has allowed France to take a leisurely approach to cutting emissions compared to its more fossil fuel-dependent neighbours.
The view in London has instead always coalesced around the free market, and the steeply rising cost of energy has immediately translated into a slew of AIM listings premised on so-called 'clean-tech' solutions and dedicated funds for investing in them. As a result the London Stock Exchange is already the premier place to list a green company, and not just within Europe. In September 2006, Prometheus Energy, a Seattle-based US company focused on liquid gas production from waste sources of methane, chose to list itself not in North America but on London's AIM. Prometheus chairman Cary Wasden notes that over the past two to three years "the risk capital-forming process has altered its geography". The locus, he says, has shifted to London, whereas in the US he has observed a "precipitous decline". Speaking on behalf of the London Stock Exchange, Richard Webster-Smith told CNBC European Business: "There is a real perception that London is the international market of choice for this [green] sector."
Within the US, of course, it is a different matter and 2006 saw a rapid and sustained galvanising of opinion among powerful business communities particularly in California and industries threatened by climate change. Aspen in Colorado became the first ski resort to join the Chicago Climate Exchange, binding itself to reducing carbon dioxide emissions. Carlo Lopes, general manager of Los Angeles' famous Bel Air hotel, has made radical steps towards making the hotel more environmentally friendly, while Mark Harmon, chief executive of California-based Auberge Resorts, is also intent on restructuring his luxury hotel collection to reuce its carbon footprint. Only time will tell if such impassionate individual efforts will coalesce into a more structured approach with federal backing, particularly where concerning carbon trading.
Already Europe's main commodity market, London explicitly set about becoming the global centre for carbon trading by establishing the UK emissions trading scheme in 2000, the first nationwide scheme of its kind. When the European Trading Scheme (ETS) went live in January 2005, it blossomed into a €22bn market centred in London. The equivalent US exchange is the voluntary Chicago Climate Exchange (CCX), which recently merged with the Amsterdam-based European Climate Exchange (ECX). The parent company of both exchanges is London-based Climate Exchange plc, an AIM-listed company founded by Neil Eckert, which has cornered 80% of the carbon trading market and made him a multimillionaire.
The final mainstay of London's dominance is its strong position as a global financial centre, a factor that has generated its own momentum in the quest to mitigate global warming, quite apart from what politicians say on the subject. Banks and financial/insurance companies generally emit comparatively little carbon dioxide directly, yet their exposure to climate change-driven credit risk, insurance losses and downstream liability is vast. The authors of Fourth Carbon Disclosure Project note: "No longer can fiduciaries claim to be unaware of what is at stake. Taking climate risks into account is now becoming part of smart financial management. Failure to do so may well be tantamount to an abdication of fiduciary responsibility and indication of poor management."
Asset managers appear to be emerging as unlikely champions of the environment hot on the heels of insurers, both driven by risk aversion as much or more than idealism. Lord Levin, chairman of the Society of Lloyd's, the insurance market, recently chaired a major debate on climate change and emphasised what this risk amounted to. "Between the 1960s and 1990s, the number of natural catastrophes doubled and insured losses increased nearly seven-fold... it's no coincidence that the 10 warmest years on record have all been since 1990. Glaciers are melting and sea levels rising." |