By Simon Ellis, Managing Director, Legal & General Investments
Although it appears a breakthrough of sorts has been made at the UN Climate Change Conference in Durban, we fear the speed at which these changes will take place is too slow. All parties agreed to work on a legally binding agreement to be written by 2015 and to come into force after 2020. This is almost a decade away.
According to the Stern review, the costs of action to reduce greenhouse gas emissions to avoid the worst impacts of climate change can be limited to around 1% of global GDP each year. However, calculations suggest that the dangers of unabated climate change would be equivalent to at least 5% of GDP each year. The lengthy delay to actual implementation could therefore be very costly to the global economy.
At Legal & General Investments, we recognise the need to shift to a low carbon economy and the vital role that private sector investment plays in that transition. Despite the mixed outcome from Durban, we believe companies that have positioned themselves to profit from the need for greater resource and energy efficiency will be in a strong position as the near universal drive for greater efficiency continues, and this is likely to have a far greater impact on global climate change than reliance on state funding, as has traditionally been the case.
At present, many of these companies are being affected by issues relating to fiscal imbalances, low growth and high manufacturing costs in the developed markets, hence growth in the sector has been limited. For this reason, we believe there will be greater progress from companies with similar operations in the Emerging Markets.
The passively run Global Environmental Enterprises fund from Legal & General Investments invests in companies throughout the world that are well placed to profit from the need for greater resource and energy efficiency. With a flexible investment strategy designed to provide broad exposure that evolves with developments in renewable energy, energy efficiency and water, waste and pollution control. This is evidenced with the recent rebalancing of the fund on 14th December, where we have seen the inclusion of Suzlon Energy and Jain Irrigation both from India, symbolising the growing importance of the developing world in these sectors.
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