Trend to identify "carbon dog" investments
31 July 2006
New Zealand business warned of growing international trend to identify "carbon dog" investments
New Zealand companies need to be aware of a growing international trend to identify companies' carbon emission status – and direct investment away from what are called 'carbon dogs".
The New Zealand Business Council for Sustainable Development says a new trend is emerging which sees analysts recommending investment in companies reducing greenhouse gas emissions. New funds are being created to channel major investment to those companies.
Mainstream investment is now moving into a field long occupied by only socially conscious investors.
And new scales are being developed to carbon-rate companies.
The Chief Executive of the New Zealand Business Council for Sustainable Development, Peter Neilson, says the climate change debate is over in the United States and Europe and many businesses here would be wise to study the emerging investment mega trend resulting from it.
"The pure profit-and-loss investment players are moving in now. They believe there is money to be made from holding the shares of low emitters and shorting the shares of big ones," Mr Neilson says.
Investment houses are setting up scales to carbon rate companies; one of the world's largest insurance firms is staking out new policies to invest in companies attracting internationally tradable carbon credits and climate change investment is about to impact on the managed funds industry.
For example in the United States, Innovest in partnership with UBS, is reported to have created a "carbon beta" basket, a fund to hold 50 stocks in five industries. Each industry grouping of stocks will include an equal number of carbon leaders and "carbon dogs", as Innovest calls them. The fund managers will monitor global warming regulations and buy and sell shares based on how those rules affect the companies.
Europe's biggest bank, HSBC, has decided to go carbon neutral, sending a ripple through Wall Street. Sky, serving 8 million homes in the UK alone, this month became the second FTSE100 company to announce its intention to become a zero-carbon company.
In the US, retail giant Wal-Mart, enjoying significant positive public feedback of its effort to help Cyclone Katrina victims, has set itself new targets to ensure that new sites will be 25% more energy efficient, as will the huge fleet of trucks that supply them.
BP has effectively reduced its emissions, cutting its carbon output by 18% in three years in a move described as being "like a country meeting its Kyoto targets in just three years." It has also launched BP Alternative Energy, a specialized division to push solar, biofuels, and hydrogen power stations with carbon storage and capture.
Mr Neilson says the insurance firm AIG has announced it recognises the scientific consensus that climate change is a reality but, at the same time, market-based environmental policies and potential new investments provide business opportunities for AIG to address the problem.
The firm is exploring an investment strategy, for example, to leverage both the financial value derived from reducing greenhouse gas emissions and other incentives to lower emissions, to develop products and services that facilitate emissions reductions for clients and support the emerging market for tradable carbon credits. These and other new opportunities are emerging in insurance underwriting as well as in investments, risk management, consulting and financial products, according to AIG.
Over the next 24 months, AIG Global Investment Group will allocate additional private equity investments to projects, technologies or other assets that contribute to greenhouse gas (GHG) emission mitigation. Projects that generate tradable carbon credits, like forestry assets, renewable energy resources, energy efficiency and other GHG mitigation technologies and "green" real estate, will be included.
AIG Global Investment Group will also enhance its environmental and climate related criteria for some new private equity and project finance investments. AIG companies will invest in buildings conforming to US green building standards emphasising cutting-edge efficiency and clean energy technologies.
"We could see the value of companies in many sectors affected by this new investment trend," Mr Neilson says.
"In New Zealand we need to make sure we don't get side tracked by retired weather forecasters claiming climate change is a fiction. We need to appreciate that even President Bush and the US Senate have, in the past few weeks, publicly accepted climate change is happening. They still debate the cause and the remedies. However, there's little doubt that, here and abroad, new policies are coming to encourage or force companies to reduce emissions.
"Social and political acceptance that climate change is happening has gone well past the 'tipping point'. No business has ever been immune to social or political influences. We have an opportunity here to wake early to the new climate change reality.
"Most of the solutions to manage climate change are already at hand. Businesses and the community stand to profit from us latching onto this early. Many businesses can drive change faster than governments. Our research shows companies which do this will enjoy widespread support from New Zealanders," Mr Neilson says. "They want our quality of life preserved, not only for them, but for future generations. The carbon dogs are on notice."