Who will be the winners from Copenhagen?
The Allianz-dit Global EcoTrends fund team looks at the investment implications of the forthcoming Copenhagen Climate Change Conference1.Bozena Jankowska, portfolio manager of the Allianz-dit Global EcoTrends fund, comments:
“Environmental technology companies today form a growing industry and we believe it will be amongst the business leaders of the future. The impact of political and social efforts to address the issue of climate change, such as the forthcoming Copenhagen Conference, could dictate the shape of the industry and to a certain extent the speed of its development.“Right now, we see two clear groups which should be long-term beneficiaries from a successful Copenhagen Conference. These are the ‘solution providers’ and the ‘early adopters’. Between them, these two groups cover the spectrum of environmental technology products which will be adopted over time including battery technologies for electric vehicles, systems to support smart grids for improved efficiency and functionality, energy efficient LED2 products, second generation bio fuels, as well as carbon capture and storage. For example, Gamesa, a company which manufactures wind turbines, currently has significant exposure to the important US and Chinese wind markets at 24% and 7% of sales respectively3.
“The ‘early adopters’ category encompasses those companies which have revised their corporate strategies well ahead of time to mitigate earnings risks posed by the rising cost of operations in the future, such as carbon tax, thereby taking into account climate change and related trends. These companies have already begun reducing their greenhouse gas emissions and carbon footprint and are putting strategies in place to realise challenging targets going forward.
“Whether Copenhagen lives up to expectations or not, over the longer term, we see sufficient momentum at the national level to ensure commitment to the development of clean technologies and efforts to phase out over reliance on carbon dioxide (CO2) intensive fossil fuels. This can be seen with Andritz, which as the world’s second largest supplier of hydropower technology, has seen an increase in sales, as Brazil and other countries increase their involvement in this sector. This growth is also being driven by the need to replace older hydropower turbines in Europe and the US over the coming years. Currently 20%of the world’s power is produced by hydropower3, and as a proven technology and the most developed form of renewable energy, we believe this figure is only set to grow.
“Certain ‘low hanging fruit’ also stand to benefit irrespective of the outcome of Copenhagen. These companies include those that deal in energy efficiency, such as better insulation in homes e.g. Kingspan and energy efficient motors for HVAC (Heating, Ventilating and Air Conditioning) systems.
Barbara Evans, Sustainability Research Analyst at RCM, a company of Allianz Global Investors, comments:
“While notable progress has been made leading up to the Copenhagen Conference, particularly around the issue of adaptation, technology transfer and capacity building, some clear challenges remain. In our view a critical negotiation point will be the issue of mid-term emission reduction targets for industrialised countries. While it is positive that we already have an almost complete list of ‘intentions’ from the developed world countries, in many cases these fall short of the cuts demanded by experts. Currently, Norway is the only country in the world that has indicated a commitment to reductions at the top end of the range urged by experts.
“Clarity is also still needed on the issue of the financial support that developing countries will require in order to undertake additional actions to limit their emissions growth and adapt to the inevitable effects of climate change. While China and India have taken significant steps forward in recent months, particularly in their commitments to deploy new environmental technologies, there is still a need for clear and significant funding commitments from industrialised countries in order to strike an agreement with emerging economies. Currently, there are no confirmed amounts of money on the table.
“If success is defined as the establishment of a framework agreement that can be translated into a legally binding document post-Copenhagen, then following a ‘successful’ summit we believe we can expect to see the following in 2010:
Consequences of ‘success’
1. A pick up in the race between economies and companies to set the technological standards for low carbon solutions
2. Continuation along the path to decoupling growth and greenhouse gas emissions
3. ‘Pending’ domestic climate change policies will receive the support they need to achieve final sign off
“If negotiations stall and no framework agreement is reached, then we expect to see a less positive outcome:
Consequences of ‘failure’
1. Local climate change policy may stall. The ability for the US and Australia, for example, to pass pending legislation into law relies, in part, on commitments by China and other emerging economies at Copenhagen
2. Hesitancy amongst some corporations to make significant capital investment due to the uncertainty regarding the future cost of greenhouse gas emissions
3. It is not the end of the road. Even if a framework cannot be agreed in December, many countries have already made their own, significant commitments to emission reductions and we do not believe these will be reversed
1 – The United Nations Climate Change Conference - known as COP15 - takes place from 7 to 18 December 2009. Delegations from 192 countries will hold talks aimed at establishing a new global treaty on climate change. It is hoped countries will agree on issues including the main points of a deal to follow the Kyoto Protocol, new targets for industrialised nations to reduce carbon emissions, new targets for poorer nations to limit greenhouse gases, and funding for developing countries to reduce emissions and adapt to a changing climate.
2 - Light Emitting Diodes or ‘LED‘ - an electronic light source which can be used for indicator lamps in many kinds of electronics and increasingly for lighting.
3 - Allianz Global Investors/ RCM internal research.
Fact file: Allianz-dit Global EcoTrends fund Investment objective
The fund invests a minimum of 75% of assets in the shares of international companies that have at least some operations in the areas of "eco energy" (alternative energy sources and energy efficiency), "pollution control" (environmental quality, waste management and recycling) and "clean water" ( water treatment and supply). Its investment objective is to attain long-term capital growth.
- Fund characteristics: Global equity fund focusing on the "eco energy", "pollution control" and "clean water" industry sectors
- Launch date: 3rd May 2006
- Managed by: Bozena Jankowska, Head of Sustainability Research, RCM (UK) Ltd.
- Structure: Allianz-dit Global EcoTrends is a sub-fund of Allianz Global Investors Fund, which is an open-ended investment company with variable share capital (also known as a SICAV) organised under the laws of Luxembourg. Allianz Global Investors Fund qualifies as an undertaking for collective investments in transferable securities (‘UCITS’) in accordance with the provisions of the European Union (‘EU’) Directive EEC/85/611 (as amended subsequently).
- Authorised for sale in: Germany, Luxembourg, Ireland, Switzerland, Austria, United Kingdom, Netherlands, Spain, France, Portugal, Poland, Hungary, Greece, Sweden, Iceland
