The report also outlines a strategic asset allocation to consider climate change as part of portfolio construction. It uses an aggressive overweight of a 6 per cent allocation to climate change sectors, compared to a 2 per cent global market capitalisation weight. It concludes, conservatively, that an ongoing assumption would be a 5 per cent excess return for climate change sectors, which would give an additional 0.4 per cent to the total portfolio. For large investors the easiest way to access climate change opportunities has been through private equity and venture capital in the form of new technology and climate change technology investments. However Fulton sees many opportunities in other asset classes including infrastructure and the lesser recognised public equities.

He believes there will be a lot of development within energy and water, and expects to see a proliferation of renewable infrastructure funds. DB estimates in the next five to 10 years there will be more than $10 trillion of investment in infrastructure with more than half going to water. “It is an interesting area, and for Australian investors it will be interesting to watch as they have heavier allocations than the global average to real estate and infrastructure.” He also sees the greening of portfolios in real estate as an area to watch and another where Australia is ahead of the curve. [see green property index story page 44] Within portfolios, DB Climate Change Advisors tends to look at climate change as a theme when analysing potential investments, rather than a sector.

“Sometimes clean tech is the closest thing to a sector, but it’s really a smaller subset of climate change. We see the sector as covering clean energy, energy efficiency, agriculture and water,” he says. “Overall we see climate change as a theme in the major asset classes and you can create specific strategy or product or see it as an investment factor.” Within its own equities team, Deutsche has made a carbon risk management analytical tool, provided by RiskMetrics, available to portfolio managers through its platform. DB has not published any research on the carbon beta tilt, but Fulton quotes research by Innovest, now owned by RiskMetrics, that shows a positive effect on returns. He is also aware a lot of investors are taking a wait-and-see approach, conceding there is not a deep product market yet. However DB is making significant inroads to make investors more comfortable, including the development in February of a clean-tech index in conjunction with NASDAQ.