I recently got around to reading Deutsche Asset Management’s (DeAM) note on investing in climate change (PDF document). There is very little original work in this paper. Most of the tables and figures are derived from existing studies by the likes of McKinsey, the IPCC and New Energy Finance, to name a few. The paper synthesizes publicly-available information on cleantech and climate change trends into a broad investment thesis. DeAM sees investment opportunities as falling in two main categories: Adaptation (e.g. water management, disaster control, infrastructure) and Mitigation (renewable energy, clean power gen, energy efficiency). They identify four key drivers of growth in target sectors: (1) government policies and regulations; (2) carbon prices; (3) environmental action by corporations; and (4) low-carbon technologies and services. The authors do acknowledge the high degree of interrelatedness between these four components. The report then goes on to outline the methodology employed to create a climate change-themed equity portfolio using the MSCI World as the underlying index. The list of potential constituents and their respective weights in the portfolio are, of course, not provided. It is also unclear who provided the research into companies’ climate change risk/return profiles based on factors like positioning in the cleantech sector and regulatory exposure. Based on my own direct experience with this sort of work, I can almost guarantee that was not Deutsche’s equity analysts. This report comes a little late in the game. There have been plenty of good, free climate change investment reports released by the sell-side over the past two years, and there is very little substantive insight left to be provided through this route. As a marketing exercise, this is also of limited usefulness for the exact same reason.
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