There may also be elements of the supply chain such as energy services companies which may benefit depending on the industry dynamics, but these are yet to be identified. Water saving and recycling technology is another potential growth area. Historically water infrastructure has lacked appropriate capital expenditure and this may present attractive investment opportunities. Some parts of Europe are now facing more severe water shortages and investment in water storage infrastructure is required. In Australia there will be increased demand for a host of water saving, recycling and other water management technologies which should support growth in the sector.
Timber is a potential beneficiary of climate change policies due to its ability to sequester CO2. Forestry and timber is the only carbon positive sector of the economy and can benefit from both emissions trading and bioenergy opportunities. It is important to be fully informed of the carbon pricing and trading mechanics that will eventuate in Australia however, and this may not be known for some time.
Small and mid-sized companies will play a particularly important role in addressing climate change and an investment in private equity provides access to these companies. Climate change poses numerous opportunities for private equity, particularly venture capital, for example via cleantech funds.
There have been an increasing number of managers offering cleantech and other similar funds more recently. In the US, cleantech has become the fifth largest venture capital investment category, after biotechnology, software, medical and communications. This is quite substantial growth and over a short period of time. Analysts have predicted that growth in the clean energy market from its present $US40 billion to $US167 billion. BP has predicted a market for solar, wind, hydrogen and gas at $US600 billion by the year 2020. Any investment made will need to consider the risks and stage of the investment and ensure diversification across the sector. There is growing demand in this sector, therefore the opportunity set is ever increasing with a range of investments across the risk spectrum.
Given the development of the market and broader recognition of climate change, the exit opportunities are also developing and becoming more predictable.
The property sector, particularly commercial property, is likely to feel the effects of climate change directly and relatively quickly, if not already. Property insurance costs are rising, as is the cost of energy and property maintenance. Commercial buildings are responsible for 8.8 per cent of Australia’s GHG emissions, with electricity use representing the dominant source of these emissions (89 per cent of all commercial building emissions, according to the Australian Greenhouse Office).