After two tenures, AsianInvestor's 2021 Standout CIO Jang Dong-hun looks back on the past six years at Korea's Poba with satisfaction.
In Deutsche Asset ManagementÆs latest report, ôInvesting in Climate Change 2009 û Necessity and Opportunity in Turbulent Timesö, the firm provides a detailed framework for understanding the opportunities for investing in climate change. An economic downturn offers governments across the developed world a prime opportunity to boost their spending on ôgreenö infrastructure as a stimulus to avoid severe recession, the firm says.
ææThe current crisis is making the necessity of tackling climate change an opportunity to stimulate growth through investment opportunities,ÆÆ says Mark Fulton, Deutsche Asset ManagementÆs global head of climate change investment research.
Encouraging investment in renewable energy is a key focus, Fulton says.
ôEnergy efficiency technologies are obviously highly desirable in economies facing recession. Infrastructure stimulus can be tied directly to climate-sensitive sectors such as power grids, water, buildings, and public transport, which present a vast field for the creation of new technologies and jobs,ö he says. ôGovernments have before them a historic opportunity to æclimate proofÆ their economies as they upgrade infrastructure as a core response to any economic downturn.ö
The debate around climate change is shifting away from cost and risk towards the question of how to capitalise on opportunities, Deutsche Asset Management notes. After all, the climate change universe includes public equity markets and private markets such as venture capital, private equity, infrastructure and timberland.
Kevin Parker, global head of Deutsche Asset Management, says this is no time for governments to back away from climate change initiatives in the face of tough economic conditions. He points out that new research shows carbon in the atmosphere has reached an 800,000 year high and that global warming may be only a few years away from the point of no return.
ôImmediate action is essential,ö Parker says. ôTo encourage private capital into technologies that mitigate or adapt to climate change, governments must create a favourable regulatory framework û in particular, a global carbon price.ö
The aim must be to create a clear long-term regulatory regime that puts an accurate cost on carbon and encourages the development of alternatives, Parker says. If governments recognise the necessity of creating the right regulatory environment, investors will recognise the opportunity and step in, he adds.
ôSevere though it is, the current financial crisis can eventually be fixed, and should not be used as an excuse for inaction,ö Parker says.
According to Deutsche Asset ManagementÆs report, investment opportunities in climate change have broadened and become more complex over the past year.
To cite a few examples, energy prices have experienced increased volatility; some renewables have moved closer to commercial breakeven with conventional energy as their costs have come down; some progress has been made negotiating the successor to the Kyoto Protocol; emissions trading regimes such as the EU-ETS have been strengthened; cap-and-trade is spreading to new geographies, such as New Zealand, Australia, and some US states (through the adoption of the Regional Greenhouse Gas Initiative); the climate change policy response in the US is gathering momentum; and the climate change technology universe has grown leading to more opportunities for investors.
Simultaneously, the impact of the credit crisis on climate change investment sectors has also been significant, particularly in the last few months, the report notes.
After generally outperforming in 2006 until the third quarter of 2007, listed equity climate change sectors lost ground against the market when the more pronounced credit crisis correction took hold from May 2008 onwards. In September 2008, many renewable stocks were aggressively sold off early in the month as liquidity considerations affected markets. Weaker energy prices led them lower as the regulatory support in the US for the Production Tax Credit (PTC) and the Investment Tax Credit (ITC) wavered in particular. The Troubled Asset Relief Act of 2008 (TARP) package in the US did extend solar and wind regulatory support, but for now markets are not focusing on fundamental support factors for company earnings.
At a valuation level, the DWS climate change alpha pool price/earnings ratio has only been marginally above the MSCI World, and is now looking more attractive following the correction.
At a sector level, there have been signs of inflated valuations, with solar being the most noted example. That is now disappearing and the credit crisis correction looks to be delivering attractive valuations given strong regulatory support for earnings, says Deutsche Asset Management.
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