Sunday, June 26, 2005

Climate Change and Investment Opportunities

From via Eco-Portal, news of a partnership between the World Resouces Institute and Merrill Lynch to produce a report "Energy Security & Climate Change: Investing in the Clean Car Revolution."
"The report is novel in two main respects: first off, to our knowledge, this is the first time a US investment bank has partnered with an environmental NGO on research," said Fred Wellington, a senior financial analyst leading WRI's capital markets research team, who contributed to the report. Interestingly, Merrill Lynch proposed the collaboration to WRI, not vice-versa, as one might expect. "They are familiar with our work, and we've had an ongoing dialogue for about a year-and-a-half, but this report is not a result of us pressuring them to put it out."

"The second way it is interesting is that other investment banks, mostly out of their European offices, have put out very good research on climate change, but the Merrill Lynch report makes actionable stock recommendations on the back of a global analysis of climate change policies," Mr. Wellington told

The first part of the report examines how energy security and climate change are driving governmental responses in the form of regulation, outlining the Kyoto Protocol as well as regulations in the European Union, US, Canada, Japan, China, and Australia.

"Clearly, there is a discernable trend towards regulating emissions of carbon dioxide and other tailpipe emissions from the burning of fossil fuels," state the report authors, led by John Casesa, Merrill Lynch global auto team coordinator. "As the causes of human-induced climate change become more generally accepted, policies to reduce GHG emissions will continue to proliferate."

Another factor driving the auto sector to address energy security and climate change is demand from consumers, who want more environmentally friendly cars but do not necessarily want to give up on performance and features. This poses a technological challenge to the sector.

"This is what we mean by the Clean Car Revolution: in a world of finite resources, higher consumer expectations are stimulating a technology race to meet them," the report states. "For investors, solutions to these challenges present a compelling investment opportunity."
Definitely challenging. I have to wonder, though, if our demand for comparable performance and features in "clean cars" isn't asking too much.

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