Deutsche Bank: Climate Change Is an Investor's Dream — If the Government Mandates It

Last Updated Jan 15, 2010 8:41 PM EST

The United Nations climate change talks in Copenhagen were a huge disappoint for just about everyone, except maybe Deutsche Bank, which is taking a glass half-full view despite the lack of a legally binding agreement of even a global emission reductions target. Their message: Invest in climate change. With one caveat: Government mandates and policies rather than carbon markets will be the key catalysts to growth in the climate change sector. Which is the exact opposite message coming from many high-carbon emitting companies.

The Deutsche Bank 2010 Investing in Climate Change report coincided with a one-day Investor Summit on Climate Risk at the U.N., which also took a hopeful view of a burgeoning clean-energy economy. But again it all hinges -- in the eyes of long-term focused institutional funds -- on government policies, mandates and incentives programs.

The 450 global investors, which represent $13 trillion in assets, attending Thursday's summit called on U.S. Congress and other global decision makers to "take rapid action" on carbon emission limits, energy efficiency, renewable energy, financing mechanisms and other policies that will speed up clean energy investment and job creation.

"Investors are poised and ready to scale up investment in building the low carbon economy, but without policies that create a stable investment environment our hands are tied," said Anne Stausboll, CEO of the California Public Employees Retirement System, the nation's largest public pension fund with more than $205 billion in assets, in a statement Thursday. "U.S. leadership is critical in this regard, including U.S. Senate action to limit and put a price on carbon emissions."
And that's the crux of it all. The money that could be made in clean-energy economy hinges on local, state and federal government action. And so we wait.

Meanwhile, Kevin Parker, Deutsche Bank's global head of asset management, wrote in the report, institutional investors should shift their asset allocation towards climate change because the investment sector not only holds growth potential in the future; it has already delivered.

"The shift to a low-carbon economy to mitigate global warming will require the creation of new technologies, industries and jobs on a massive scale. The absolute imperative to prevent climate change is therefore, also, I believe, the economic and investment opportunity of our lifetime," Parker wrote in the report.
Climate change sectors have outperformed the broader public market since the market bottomed in March 2009, the DB report notes. Agribusiness and energy efficiency have led performance, with all primary sector showing strong returns over the last three years. Climate change sectors include energy efficiency, water, agribusiness and clean energy.

Another interesting note from the DB report. The collapse in natural gas prices, which are now uncorrelated with oil and trading at a historic discount, raises challenges for renewable energy break-evens.

And we've already seen evidence of that happening in 2010. Billionaire energy investor T. Boone Pickens ditched plans to build the world's largest wind farm in Texas, in part because low prices made natural gas -- not wind -- as the go-to cheap and cleaner than coal resource to generate electricity.

See additional BNET energy coverage on climate change: