There is definite proof that sustainability-focused funds are outperforming their conventional counterparts. But some experts believe the traditional explanations for this are wrong.
ôWe see the shift away from a carbon-based economy as a crucial trend and expect climate change will continue to create substantial new markets, ranging from clean technologies like solar and wind power to carbon trading,ö says Mark Fulton, New York-based global head of climate change investment research at the firm.
Deutsche Asset Management manages around Ç546 billion in assets. The firm has around Ç7 billion in climate change-related strategies.
WhatÆs unique about Deutsche Asset Management's pitch for this climate change fund is the message that even non-believers in the sense of urgency in saving the environment shouldnÆt overlook this investment theme.
ôEven if you donÆt believe in the science of climate change, governments believe in it enough to create investment opportunities,ö says Fulton.
When it comes to the environment, there are investors who accept the majority of the scientific evidence, monitor further developments in the field, and then invest in the available opportunities. On the flip-side, there are those who disagree with the scientific evidence, adopt a wait-and-see attitude, or outright ignore the issue.
Whatever beliefs an investor may have regarding the environment, particularly climate change, it makes sense for investors to take their cue from the early movers such as governments, regulators, companies, and other investors who are already participating in the climate change issues, Fulton says.
ôClearly, we believe climate change is quite real,ö says Bill Barbour, a Singapore-based specialist at DWS Investments, which is the global retail asset management brand of Deutsche Bank. ôBut one doesnÆt have to be a zealot to invest in a fund like this because governments are going to be driving change on this.ö
New climate change-related markets have already emerged, encouraged by the action taken by governments around the world in the search for energy efficiency and diversity. For example, the Stern Review estimates that the value of low-carbon energy markets will reach $500 billion by 2050. The Stern Review on the Economics of Climate Change is a 700-page report released in October 2006 by economist Nicholas Stern for the British government. That report, which has helped bring the issue of climate change to the public arena, discusses the effect of climate change and global warming on the world economy.
The DWS Investment Climate Change Fund is based on two investment themes: mitigation and adaptation. Companies that protect the climate fall under the mitigation theme while those with products and services that fight against the consequences of climate change fall under adaptation.
Among the key sectors where climate change-related opportunities can be found are water resources, agriculture, forestry and ecosystems, human health, power, transport, buildings, and industry and manufacturing. Examples of companies that meet these criteria include Toyota, Rockwell, Emerson, Phillips, Daikin, Grontmig, Covanta, and Verenium.
Deutsche Asset Management has identified around 1,200 companies that have businesses related to the climate change theme. Fulton and his team have narrowed down this investment universe to companies with a market capitalisation of more than Ç200 million, a free float of at least 20% of total shares, and at least 50% of revenues from climate change-related businesses. The portfolio is expected to invest in around 80 to 120 stocks.
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