Most analysis post-Copenhagen has concentrated on the seeming lack of tangible results – no legally binding agreement or an agreed emission reductions target – inferring only negative connotations. But the climate change investment research group at DB Climate Change Advisors, led by Mark Fulton, has more of a “glass half-full” perspective citing that the countries that are the largest emitters agreeing to take action as a positive step. “Very few people expected a legally binding deal, and to come out with an accord where the largest emitters are signed up, that is positive,” Fulton says. Fulton believes there is never going to be an accord that is a one-size-fits-all and concedes there is some disappointment that no hard emissions target was agreed on for the developed world. He still supports the view that a carbon market is a necessary development.
But he stresses investors need to remain very focused on what drives markets, and that local level and country level targets are key to that. Despite the lack of results at Copenhagen, Fulton contends there are still plenty of opportunities for investors who look globally. DB Climate Change Advisors produced a global tracker document last year, which included an aggregate risk rating of countries based on key mandates and supporting policy frameworks. The belief is that investors will become increasingly concerned about regulatory risk, and countries which deploy a transparent, long-lived, comprehensive and consistent set of policies will attract global capital. According to the report China, Germany, France and Australia all have lower risk profiles for climate change investments because their governments have strong incentives in place, along with a consistent approach.
Notably the US, UK and Canada are moderate risk as they rely on a more volatile market incentive approach, and in the case of the US have suffered a stop-start approach in some areas, such as the production tax credit. “For a global investor there are plenty of good, well-constructed policies creating markets and driving capital,” Fulton says. DB’s mantra when it comes to climate change investing is that investors want transparency, longevity and certainty. DB’s latest report examines asset allocation implications, which Fulton will draw on in his presentation, DB argues that climate change investment is growing rapidly relative to the broader market, providing a distinct and identifiable source of alpha.