Climate change: How investors can weather a stormy future

Climate change: How investors can weather a stormy future

Floods, storms, hurricanes and tornados - only the most virulent deniers of global warming and its effects refuse to accept climate change and its effects. But a growing number of investors see new weather patterns and their results as opportunities, as well as problems.

Fund managers are rushing to set up "climate change" funds. Allianz, F&C, HSBC, Jupiter and Schroders are leading the field with new or planned funds and HSBC calls climate change "one of the biggest investment themes for the foreseeable future".

So far, these have attracted tiny amounts - under £100m - but there are hopes of increasing interest which will lead other fund managers to join in if the cash inflow becomes a reality.

The trick managers hope to pull off is spotting firms well placed to respond to a changing climate and its effects on the wider economy. "Global warming will have a huge impact on everything, including transport, property, agriculture and insurance," says Simon Webber, joint manager of Schroders Global Climate Change fund. "We look for companies that either mitigate climate change or help others adapt to it. We have identified 600 worldwide but our fund only invests in around 75."

Strictly speaking, the Schroders fund is not an ethical or "green" fund. While it can invest in clean wind or wave energy, it can also buy shares in the nuclear power industry. It hopes to appeal both to investors who believe climate change is a huge threat and those.....continued below

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who simply believe this is the way the stock market is heading. It holds shares in insurer Munich Re, which has a 30-strong team researching how insurers should react to the new environment.

HSBC's Climate Change fund was launched earlier this month. It has also set up a "Climate Change Centre of Excellence," to analyse some off the key issues. Run by Nick Robins, formerly a fund manager specialising in socially responsible investment, it seeks "to act as a catalyst for greater understanding of the scientific, regulatory and economic dimensions of climate change".

Mr Robins says: "The bank looked at its own carbon footprint and achieved neutrality in 2005. Last year, we initiated a carbon finance strategy looking at how climate change impacted on lending decisions and corporate operations. From there, HSBC moved to setting up the new centre which will research how the bank can go beyond carbon neutrality to full sustainability."

HSBC's new fund is managed by Farley Thomas, who sees climate change as all-encompassing. "It's a structural factor that will have far more impact than the internet. It affects basics such as agriculture, housing and the food versus fuel debate in the biofuel arena. It's not just a future threat - it's here now, and how firms react to it will determine the course of future earnings," Mr Thomas says.

"We have set up an investable climate change index of around 300 diversified companies that derive more than 50% of total revenues from climate-change related activities."

Mr Thomas says that if an investor had been able to buy into the index in January 2004, he or she would have enjoyed a return of 125%. The MSCI World index advanced 55% over the same period.