LONDON — Global warming is permeating the portfolios of institutional investors, driven not only by a social conscience but also by regulatory changes and skyrocketing oil prices among other economic factors.
"The socially responsible side is not a core theme," said Ian Simm, chief executive of London-based Impax Asset Management Ltd., a specialist in environmentally friendly strategies with about $550 million under management. "The need to cut carbon emission is very real and increasingly becoming a competitive investment activity due to high oil prices and such. You can accept those drivers as a way of gaining (investment) returns irrespective of the moral authority behind it."
It is not known how much capital has been invested in strategies to reduce worldwide carbon emissions, Mr. Simm and others said. Investors are gaining a stake directly through various specialist pooled funds, but more often, they're indirectly exposed through hedge funds, commodities and infrastructure funds as part of a broader strategy.
Estimates by the Investor Network on Climate Risk, Boston, placed U.S. institutional investments in greenhouse gas reduction strategies around $1 billion, still relatively small compared with other energy-related strategies. In Europe, the market could be as much as four times higher because of a more developed socially responsible investing setting, according to estimates from some asset managers in the sector.
Strategies vary widely, but they generally combine one or more of the following categories — giving preference to companies that have made efforts to report and reduce global carbon emissions; speculating in businesses linked to alternative sources of energy; supporting investments aimed at cleaning up polluted industrial plants in developing countries; or trading in carbon credits, also known as certified emissions reduction, or CER, contracts.