Heading for a warmer world: investing in a changing climate

Among those who cite Katrina’s disastrous impact as a catalyst for changing their thinking about the environmental agenda was Lee Scott, Wal-Mart’s former CEO in 2005. He argued that we should all view the environmental agenda ‘as Katrina in slow-motion’.² Of course not everyone saw hurricane Katrina this way. At the time, the links between climate change and extreme weather were hotly disputed even within the scientific community, but roll the clock forward to 2012 and there is now overwhelming evidence that the climate has warmed over the past few decades, that it is continuing to warm and that the dominant influence is man-made.

Weather Records Broken

In fact, the litany of weather-related records that have been set in 2012 is pretty overwhelming. The UK experienced the wettest June on record and the UK Met Office recently confirmed that 2012 summer was the UK’s wettest in 100 years³ - in itself no mean feat! If anything, the scene has been even more dramatic elsewhere. 3,200 heat records were broken in the US in June, making the first six months of 2012 the hottest since records began⁴. Since then of course the situation has got steadily worse with a brutal drought reported to have destroyed 45% of the corn and 35% of the soya bean crop⁵. July was the warmest month in the US since national records began in 1895⁶. NASA confirmed that, globally, July was the 329th consecutive month in which the temperature exceeded the 20th Century average⁷. And finally, we now know that Arctic sea ice is at its lowest extent since satellites first began monitoring the area over 30 years ago⁸.

Republicans ignoring climate change despite worsening outlook

And still climate change is not recognised by significant parts of the US Republican party. Mitt Romney in his energy plan does not mention climate change⁹ and is proposing to strip the Environmental Protection Agency's authority to regulate emissions of greenhouse gases. But irrespective of the manoeuvrings of the Republicans, it is clear that the world is already beginning to face a serious challenge to adapt to a changed and still changing climate. Professor Bob Watson, one of the UK Government’s scientific advisors has said that he believes we are already heading for a world that is at least 3°C warmer than today¹⁰. This is the view that we take in our investment strategy which now includes a significant focus on climate adaptation.

Climate Change and the Market

This view feeds into how we think markets are likely to evolve, and the demand that we anticipate for products and services that help companies, communities and countries to adapt to climate change. Climate change remains somewhat unpredictable and it is difficult to anticipate with confidence how it will affect the market success of any individual company, but we are increasingly looking to include companies that offer solutions to the challenges of a changed climate. For example, among the areas we have looked at and feature in the fund include:

• Increasing demand for services from companies involved in modelling and measuring environmental change such as Telvent, part of Schneider Electric;
• Engineering consultants that advise on, and help implement, new corporate and public-sector strategies aimed at making infrastructure and operations more resilient such as Tetra-Tech andArcadis;
• Companies that seek to improve the productivity of agricultural systems such as Trimble Navigation Systems which has a business helping farmers use expensive agricultural inputs more efficiently; and,
• Companies involved in supporting or reinforcing critical infrastructure such as the US companyQuanta Services, which is involved in building and maintaining electricity transmission and distribution systems.