Climate policies ‘generating returns for investors’ – Deutsche Bank

London, 21 January: Tilting investment portfolios towards companies offering solutions to climate change is already generating outperformance for investors, and will continue to do so, regardless of the disappointing outcome of the Copenhagen climate talks, according to Deutsche Bank.

“The evidence is in – [climate change policy] is creating returns,” Mark Fulton, global head of climate change investment research, told Environmental Finance. “It’s time for investors to say, ‘the economic thesis is working’.”

In a research note, Investing in Climate Change 2010, the bank examines the effects of integrating climate change considerations into a standard asset allocation strategy for institutional investors, using conventional benchmarks.

The bank then overlays the climate change theme, using various clean energy, water, energy efficiency and agribusiness indexes.

“We demonstrate ... that a simulated investment portfolio with a 6% allocation to climate change would have outperformed a benchmark portfolio over the last three-to-five years. The out-performance would in fact have amounted to an extremely respectable 0.7% over the benchmark,” wrote Kevin Parker, Deutsche Bank’s global head of asset management.

“The results may come as a surprise to anyone but the most seasoned climate change investors,” he added.

The note repeats Deutsche Bank’s thesis that the carbon markets are currently unlikely to drive substantial low-carbon investment, given the low carbon price and medium-term policy uncertainty. Instead, the bank’s analysts maintain, investment – and investment returns – will be driven by national-level policy. 

“While the United Nations Framework Convention on Climate Change COP15 meeting in Copenhagen did not deliver a legally binding global deal to curb greenhouse gas emissions, the Copenhagen Accord shifted the focus to countries taking action and reporting it individually,” Fulton wrote.

“Our research ... [is] focused on the key developments in policy and investment markets at a country level ... We continue to believe that for the next few years this is where investors have to stay focused and that policy will continue to be developed at a country and regional level,” he added.

“As we look ahead over the next two years, mandates and standards and innovation policy rather than carbon markets will be the key catalysts,” he wrote.

“My view is that ultimately we’ll need carbon markets when we get further out,” he said. “Carbon markets will drive deployment in the 2020s and 2030s.”