Mike Foster
01 Oct 2007
Politicians view climate change measures as potential bargaining chip
Even though it is fashionable to say climate change is a threat, politicians are reluctant to use regulation and tax as a weapon against it.
They take the view that turkeys do not vote for a green Christmas for fear of being stuffed at election time. So their moves are cautious. Politicians danced round the subject again at the United Nations last week, viewing it as a potential bargaining chip.
They know consumers are disinterested, despite feeling sorry for small polar bears on melting icebergs. People are reluctant to sacrifice their lifestyle for a better climate.
Despite all the hype about hybrid cars, conventional vehicles outsell those that are environmentally friendly by a factor of 16 to one. Replacing a boiler makes sense but it takes a great deal of effort to spend a lot of money.
In contrast, recent weeks suggest that investors have climbed off the fence to decide that clean energy is the next big thing.
They take their cue from Alan Brown, Schroders investment chief, who told a Financial News summit in April that the science behind climate change was scarcely relevant. The point was, enough investors were starting to worry about it to alter market behaviour.
Last week the Nex clean energy index bounced back from credit market jitters to near July’s high.
This year it has risen more than 40%, against 7% from the S&P 500. The Jefferies Cleantech index is up 51%. Carbon trading was one of the few hedge fund strategies to deliver a positive return in August.
According to data provider Lipper Feri, a record-breaking 15% of the money flowing into equity pooled funds headed for ecological and environmental funds in the seven months to July. Last year the sector won only 2.6% of the total.
Allianz RCM has taken €1.5bn for its climate change fund following its rise in value by 24% since launch in May last year. It could have raised €5bn if it had not been afraid of swamping manager Bozena Jankowska with money.
According to information provider New Energy Finance, clean energy deals put together by venture capitalists in Europe have achieved an average return of 50%.
Investors believe the threat of climate change with commodity shortages and energy security concerns will produce a fiscal and technological revolution.
As ever, the end result is a bubble. But there is no shortage of companies that are backing the change of view. Asset manager Alliance Bernstein is leading the way, arguing that institutions should buy and sell stocks taking account of energy issues. Retailers Wal-Mart and Marks & Spencer have become supporters of energy efficiency.
UK bank HSBC has followed Dutch rival ABN Amro to create a series of climate change indices. US bank Merrill Lynch has decided environmental factors will be embedded in its broking research while Citi’s strategy chief Ed Kerschner has made the issue core. Standard Chartered has pledged $10bn for clean energy projects. The list goes on.
Last week, former US President Bill Clinton argued that clean energy will regenerate the global economy rather than cripple it. That view is a tad optimistic. Replacing infrastructure will be expensive.
But capitalism thrives on measured change and one day, Clinton might be proved right.
Shell pension sponsor takes a holiday
The decision of the £12bn Shell pension scheme to give its sponsor a one-year contribution holiday, after registering a £2.9bn surplus, is a rare event these days.
The scheme prospered last year thanks to its 85% weighting in listed equities, private equity and property. Its exposure to bonds – a dull performer – was only 12%.
The scheme also benefits from the strength of its sponsor. Assuming its longevity calculations are realistic, there is no point Shell putting money into it that can never be clawed back.
The £3bn Marconi pension scheme should be so lucky. A year ago it lifted its bond weighting to 80% after selling a large slug of equities. The investment timing was terrible, although Marconi can argue it had no choice, given the stance of the regulators and the weakness of its sponsor, UK-listed Telent.
Ed Truell’s Pension Corporation popped up with a £400m bid for Telent last week. It is keen to take on the Marconi scheme, using its financial strength to pursue a more sensible investment strategy.
Thomson Regional Newspapers has sold its £200m pension scheme to investment bank Citi.
Medium-sized sponsors such as Delta, Aga Foodservice and Rank are considering scheme sales. Big backers are becoming beautiful in the UK pensions world
