Is Climate Change A Business Opportunity?
“Repent, for the end of the world is nigh”, was the message of the Stern report on climate change, presenting a compelling case for action to avoid an economic catastrophe comparable to the Great Wars and Depression of the first half of the 20th century.
You might have expected investment markets to make more of a fuss. Stern’s dire warnings sound like an invitation to governments to play God – and idea you’d expect the City to detest – but there was barely a squeak of protest. Shares in coal-fired power generator Drax – Britain’s biggest greenhouse gas producer – actually rose.
Do investors think governments lack the will to deliver measures that will truly change the way we live? Maybe things will be different after Stern, but the City will believe it when it sees it.
Stern’s report was music to the ears of City folk – and not just those who’ve had the foresight to buy green energy shares. London is already an entrepot for alternative energy – both in terms of share listings and carbon credit trading.
There was a predictably negative response from the likes of the Institute of Directors, which managed to damn Stern with faint praise… while inveighing against anything that required business to share the pain.
But far-sighted companies see global warming as an opportunity. The climate change market is worth $500bn and London has first-mover advantage. Saving the planet and serving the interests of shareholders are not mutually exclusive.
But don’t assume the shift will be painless; interventionist measures could seriously hurt growth, and governments can all to easily wreck important new markets: witness the blow to the carbon trade earlier this year when EU states issued more permits than their companies needed, undermining a market predicated on the scarcity of permits.
Markets abhor uncertainty and business needs a policy framework that enables it to plan ahead. But make no mistake Stern marks a watershed. If you’re not already planning your portfolio on the assumption that climate change is right at the top of the business, political and regulatory agenda, you should be.