Allow me to introduce this post by saying that I wholeheartedly welcome the firming of a new trend in North America: namely viewing climate change as a value creation, rather than as a value destruction, proposition. For the better part of the past decade, the climate change debate has been dominated by the the views of a small-yet-powerful collection of business actors with a lot to loose from seeing governments regulate greenhouse gases (GHG). This group, with its tremendous political influence, did everything that it could to stymie meaningful debate on the climate question, tirelessly arguing that moving to limit GHG emissions would equate to nothing short of economic suicide. Fortunately, this era is coming to an end, and an increasing number of investors are now seeing climate change as a way to cash in on some new business opportunities being created across a number of sectors. Naysayers, I have this to say to you: fixing the climate is not about reducing the size of the pie, it’s about altering its composition. Now, with this in mind, let’s move on to the meat of this piece: a new report by Citi entitled Climatic Consequences: Investment Implications of a Changing Climate (PDF document). I read this report last week and would definitely recommend it to folks who are having a hard time seeing where upside can arise from efforts to tackle GHG. The report identifies 3 broad sets of “implications” related to climate change that can create business opportunities for certain companies: Physical Implications: Select US natural gas exploration and production companies, farm equipment suppliers, agricultural biotechnology companies, and select US property insurers. Regulatory Implications: Select electric utilities, engineering and construction firms, capital goods companies, natural gas suppliers, select automobile companies, food processors, fertilizer suppliers, wind and solar power companies, and companies focused on building energy efficiency. Behavioral Implications: “Climate consultants��? offering services that promote efficient energy usage, and companies that facilitate carbon trading. The report lists 74 stocks, and briefly explains why each company is well-positioned to benefit from climate change. This is a very instructive piece if you have limited knowledge of certain key clean tech areas such as clean coal, solar and wind, ethanol, etc., but especially of how these areas could see growing upside from efforts to combat climate change. The report does a good job of providing very useful information in an easy to understand, no non-sense format. Citi does, however, warn of a few caveats: “The key risk to our climatic consequences theme is that governments, regulatory organizations, and/or corporations no longer feel compelled to take near-term steps to respond to the perceived threat of global climate change. In addition, part of our analysis is based on the assumption that restrictions on the emissions of various greenhouse gases will be tightened within a number of countries in future years, which may not happen for a variety of reasons, including political and economic considerations at a national and local level. We further note that our analysis does not consider stock-specific metrics such as valuation, EPS, and P/E ratios, or balance sheets, market capitalization, and liquidity. Accordingly, when making decisions, investors should view thematic analysis as only one input. Further, since this analysis employs a longer-term methodology, the conclusions of a fundamental analysis may be different.” Have a good read!!
Very interesting article Charles…
particularly on the day that the UN Intergovernmental panel says “Humans are 90% likely to be causing Global Warming”…
I’ve just been debating with someone that “economic laws” are, unlike “physical laws” – that they’re human contructs – due to human nature/psychological input of humans – that they can be changed at any time.
This stemmed from a point on Adam Smith (the economist)“more than two businessmen talking together in a corner justifies the suspicion that they are discussing devices in restraint of trade”.
I think the opposite is happening here: that tackling climate change will encourage trade! Imposing limits (post-Kyoto) will act as a driver for innovation – to innovate around the problem. Therefore giving spin-offs – for future trade. The fact we’re all in a “Global knowledge economy” these technologies can then be traded with each other.
I still maintain that this will not harm the US economy – any more than say certain sectors are struggling already (q.v. automotives). It will consolidate the US & EU economies I believe. Whilst stimulating sustainable growth in the non-OECD countries also!
The situation for cleantech is much like that for the IT sector – with the likes of Microsoft and Google – both highly successful innovators – thriving by surviving on there wits. I note James Frasers (The Energy Blog) post saying that Silicon Valley has seen growth along with CleanTech.
I support 100% what you say here Charles – the very premise of what you say makes perfect sense.
Unfortunately, it seems that a number of people still seem to be convinced. I think these people are like “the automotives” I mentioned, they failed to grasp the opportunities until the problem was at their doorstep. Overconfidence at dominating their market led them to slip.
We don’t need to justify Alt-Energy / CleanTech anymore – the changing markets are doing it for us.
Not to say that all parts of “AE/CT sector” are good – many have their own problems to overcome as we know, indeed thats why I read your blog – to get a good idea of ones worth watching!