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Schroders launch Climate Change Fund 12.06.07

Simon Webber Fund co-manager

Schroders Global Climate Change Fund, the first UK fund to specialise in companies involved with mitigation of or adaptation to global climate change, coincides with a report arguing that UK fund managers ignore climate change.

In January Citibank published a list of 75 companies it estimated would benefit from the battle against climate change, Aegon Asset Management recently published a paper on the investment possibilities of climate change, now Schroders has launched a mainstream Global Climate Change Fund specifically designed to factor climate change into investment decision making. The financial world has woken up to the realities of climate change and changing and developing their investment strategies to reflect that or has it?

According to a report from Headland consultancy Schroders appear to be going against the mainstream financial philosophy. They questioned 19 fund managers representing £3 trillion of investments.

The report found, “In terms of a directional change to investment, fund managers are generally tied by the terms of reference agreed with each pension fund client. There is little or no evidence to conclude that these mandates have yet to include guidance on, or requests for managers, to take the influence of potential climate change issues on investment decisions (other than by those clients who have traditionally included environmental and socially responsible guidelines in their investment mandates). In general, most fund trustees’ guidance seems to focus on the maximisation of returns, and have not required any analysis of risk and opportunity in terms of climate change influence on portfolio management.”

The high performance of ethical funds, many of which have weighted portfolio’s towards the “technologies of the future” has certainly increased investor interest in the sectors concerned.

The increased interest in renewables and energy saving technologies has seen some high profile in investors in recent years, Microsoft’s Bill Gates has invested in Pacific Ethanol, Larry Page and Serge Brin, Google founders have poured money into solar thin-film developers Nanosolar. However .com boom style venture capitalists make up only $2 billion of the $71 billion invested in clean energy technology last year. AIM the Exchange of choice for clean energy IPO’s has seen a high level of investor interest in the sector.

The Schroders Global Climate Change Fund is very different from an ethical investment fund. Firstly it doesn’t use the ethical screening process, rather it will look at the companies that are going to be affected by global climate change and pick out 50-80 of those who are actively engaged in either mitigating the effects of climate change by lowering their and our dependence on carbon or in adapting to the effects.

Schroders has established a proprietary database of companies where the effects of climate change have a significant impact on the long-term investment case. Having established the investment universe, the team will focus on the very best ideas that have been identified by Schroders global equity team and locally based equity portfolio managers and sector specialists. The fund will be co-managed by Simon Webber and Matthew Franklin.

Simon Webber, Joint Fund Manager of Schroders Global Climate Change Fund said, “Investors simply can’t afford to ignore the realities of climate change. Across all sectors, climate change will have a broad and lasting impact along the value chain. For the mainstream equity investor, now is the time to adopt a global approach to what will be a major investment theme for the foreseeable future. Crucially, Schroders has the capability to take a global approach to a global challenge – enabling us to identify the broadest possible opportunity set”

For Schroders climate change is going to be a crucial issue for all companies to address, those that are first will be ahead of the game and mark excellent investment opportunities.

Robin Stoakley, Managing Director UK Retail said, “We believe there are excellent returns available by investing in companies which will benefit from efforts to mitigate and adapt to climate change. Dealing with climate change is likely to be the biggest global investment theme of the next 20 years plus…The rapidly changing landscape will enable innovative, flexible and well run companies to improve their prospects relative to competitors, leading to strong investment returns. We believe an unconstrained portfolio dedicated to investing in these well positioned companies has the potential to generate very strong investment returns. This is not just about a few wind farms.”

The Schroders Global Climate Change Fund is clearly targeted at the mainstream investor, whether it has a place in an ethical investment portfolio will very much depend on both the ethics of the investor and the choices made by the fund managers. It is clear as well that despite the very public statements by the likes of Citibank, Aegon and now Schroders the majority of UK fund managers remain to be convinced about global climate change.

Subject to FSA approval, the Schroders Global Climate Change Fund will be available from September.

Peter Shield

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Related links

Schroders corporate site

Has the debate on climate change affected institutional investment behaviour? Headland Consultancy Report (PDF)

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