Is Green Investment Finally on the Brink of Breaking Out?

Kevin Parker, Global Head of Deutsch Asset Management

Will the U.S. Catch Up with the Rest of the World?

Hugh Wheelan of Responsible Investor conducted a great interview of Kevin Parker, Global Head of Deutsche Asset Management (DeAM) based in New York City. In it, Parker puts forth the most positive outlook yet that private money is finally coming to climate change technology. Despite Parker’s bullishness, the money has not yet surfaced for the most part, but he says it’ll be this year and investment will increase annually for the foreseeable future.

Parker says insurance companies are beginning to model the strange weather patterns that have been emerging and trying to understand the financial impacts they will have on the world. While global temperatures continue to rise, there are many inconsistencies and microclimates are emerging. Parker notes that Northern Europe for example, is becoming a colder climate because of the impacts of the Gulf Stream.

Investors who are thinking about generational wealth are putting environmental issues and the availability of energy and natural resources at the top of their investment priority, as most of them will hit major crises in the next 50 years. Savvy Middle East investors are beginning to hedge against depleting oil resources, which they say will run out in the next 50 years.

Parker says a global price on carbon is coming fast. Not surprising though, he says the U.S. is lagging behind the world on these issues.

To date, Parker says DeAM has taken in $12 billion in assets on the climate change theme, but only $50m from US investors, despite launching the country’s first climate change mutual fund. Regarding his homeland, Parker has serious doubts: “Things are obviously not happening at the federal level but they are happening at the state level.” A recent quote by the DeAM chief accusing the US administration of being “asleep at the wheel” on climate change was picked up by former Presidential candidate and Senator John Kerry to goad the government into action and “stop the investments going elsewhere.”

“The last year has been horrible for the [green] sector. It has not been easy to make money. Having said that, wind energy is clearly a long-term big winner and solar energy prices will continue to drop and become increasingly competitive with fossil fuels. We think natural gas is also a big winner and that coal is a dead man walking. There are also huge energy efficiency opportunities in buildings, building technologies and grid suppliers.”

Parker says green properties are commanding higher rents, and he sees expanding investment across the board in the green sector, particularly in infrastructyure, renewable energy, energy efficiency and water resource themes

For sustainable development proponents, it is welcome news indeed. And for responsible investors, it represents significant opportunity.

Financial News reported today that investment consultant Mercer is predicting that climate change will force a 40% shift in investments into climate sensitive sectors, including infrastructure and agriculture. 

The following report by Deutsch Bank explores the issues related to climate change investment risk and return.

Investing in Climate Change
The Mega-Trend Continues: Exploring Risk and Return

The report explores the major shift in investor attitudes taking place and the potentially profound impact climate change may have on existing portfolios.

The report identifies eight key trends which will influence investors’ capital allocations over the next year:

  • The climate change megatrend persists.
  • A more sophisticated exploration of climate change risk within portfolios.
  • Policy is a key driver for cleaner energy.
  • The ambitious scale, scope and commitment of Chinese leadership will foment structural change in clean technologies.
  • Investors will look to US state projects rather than projects driven by Federal policy.
  • Natural gas as a lower-emission transition fuel in the US.
  • The risk-return profile in the climate change sector varies between asset classes.
  • Global policy makers recognize the need for more in-depth dialogue to explore how public and private partnerships can support renewable energy scale-up in developing countries.
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