Deutsche Bank's DeAM publishes major climate change research

Indicates investing in climate change can help stimulate economies.

Deutsche Asset Management (DeAM) has published a research paper arguing that the accelerating pace of global warming will force governments to invest more heavily in climate change mitigation and adaptation despite the financial setbacks of the current market crash. “Investing in Climate Change 2009 – Necessity and Opportunity in Turbulent Times,” authored by DeAM’s Global Climate Change Investment Research team, provides a detailed analytical framework for understanding the opportunities for investing in climate change. But it also says that an economic downturn offers governments across the developed world a prime opportunity to boost their spending on ‘green’ infrastructure as a stimulus to avoid severe recession.

According to Mark Fulton, DeAM’s Global Head of Climate Change Investment Research, “The current crisis is making the necessity of tackling climate change an opportunity to stimulate growth through investment opportunities.” He adds, “Encouraging investment in renewable energy is a key focus. Energy 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. Governments have before them a historic opportunity to ‘climate proof’ their economies as they upgrade infrastructure as a core response to any economic downturn.”

The paper states that the debate around climate change is shifting away from cost and risk towards the question of how to capitalize on exciting opportunities. The climate change universe is well-suited for public equity markets and particularly, private markets such as venture capital, private equity, infrastructure and timberland.

Kevin Parker, Global Head of Deutsche Bank’s Asset Management division and a member of the Bank’s Group Executive Committee, says in the report that this is no time for governments to back away from climate change initiatives in the face of tough economic conditions. Parker 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. Immediate action is essential. To encourage private capital into technologies that mitigate or adapt to climate change, governments must create a favourable regulatory framework – in particular, a global carbon price.

Parker adds, “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. If governments recognize the necessity of creating the right regulatory environment, investors will recognize the opportunity and step in. Severe though it is, the current financial crisis can eventually be fixed, and should not be used as an excuse for inaction.”

Part I examines the climate change investment universe.

 

Climate change is a large and growing investment opportunity.

Climate change sectors have been caught up in the volatility of the credit crisis. Given regulatory support, they should recover well and value is already been established in many sectors.

Climate change when combined with energy security will play a role in government efforts to stimulate economies in 2009.

In the long-term, DeAM expects a return to higher oil and gas prices, but weaker coal prices with carbon prices as they are adopted, being the key backstop to ensuring clean energy is deployed.

Part II examines how regulation interacts with the underlying dynamics of technology costs and energy prices.

Government regulation, including carbon pricing, traditional regulation (mandates and subsidies) and innovation policy (incentives and subsidies) is a major driver of investment opportunities in climate change.

Carbon pricing is the key long-term market-related climate change policy.

Clean technologies are becoming broader and deeper. It is important to understand their stage of development for investment purposes. For venture capitalists, driving down the cost learning curve is a key focus for any technology.

In the long run, the most sustainable breakeven point for renewables is when they are commercially viable without subsidies, but with a carbon price established to ensure that they remain viable when energy prices are volatile.

DeAM has already established a substantial presence in some of these climate-related strategies and continues to look for additional opportunities. DeAM’s specific climate change strategies seek to invest in industries and companies that are involved in both the mitigation of, and the adaptation to, climate change.

DeAM has signed up to the United Nations Principles for Responsible Investment (UN PRI). The six principles, which are voluntary, provide a framework to help investors integrate environmental, social and corporate governance (ESG) considerations into their investment activities. At the start of 2008, the UN PRI had almost 200 signatories, representing more than $10 trillion of assets under management. To encourage investor awareness, DeAM has also joined the Investor Network on Climate Risk (INCR). INCR is a global network of institutional investors and financial institutions that promotes understanding of the financial risks and investment opportunities posed by climate change. Launched at the first Institutional Investor Summit on Climate Risk at the United Nations in November 2003, INCR now includes more than 60 investment institutions collectively manage nearly $5 trillion of assets.

About Deutsche Bank
Deutsche Bank is a leading global investment bank with a strong and profitable private clients franchise. A leader in Germany and Europe, the bank is continuously growing in North America, Asia and key emerging markets. With 81,308 employees in 75 countries and markets, Deutsche Bank offers unparalleled financial services throughout the world. The bank competes to be the leading global provider of financial solutions for demanding clients creating exceptional value for its shareholders and people. www.db.com

About Deutsche Asset Management
With approximately US$716.0 billion in assets under management globally (as of 30 September 2008), Deutsche Bank’s Asset Management division is one of the world's leading investment management organizations, not just in size, but in quality and breadth of investment products, performance and client service. The Asset Management division provides a broad range of investment management products across the risk/return spectrum. www.deam.com