Green + Green = ?

Take capitalism. Add a passion for sustainability. The result: investment funds focused on mitigating the effects of climate change.

By MARA LEMOS STEIN
Kevin Parker isn’t about to let his passion for the environment get in the way of his day job.
“I’m a devout capitalist, and there’s money to be made whilst respecting the planet and the environment,” says Mr. Parker, the global head of Deutsche Asset Management, a unit of Germany’s Deutsche Bank AG. “These are not mutually exclusive,” he says.
Mr. Parker, a member of Deutsche Bank’s group executive committee, oversees $613 billion of assets under management. Four years ago, he launched what are thought to be the first investment products focusing on businesses that will help mitigate the effects of climate change. Those funds currently have about $4 billion in agribusiness, clean technologies, energy efficiency, environmental management and water.
A believer that information breeds action, Mr. Parker’s next project is to raise awareness about the daily greenhouse-gas emissions around the world by setting up a second-by-second counter in New York City.
The Wall Street Journal sat down with Mr. Parker recently at his Park Avenue office in New York and had a wide-ranging conversation about organic farming, the environment, renewable energy and policies to address climate change. What follow are edited excerpts of that conversation.
A Vintner’s Approach
THE WALL STREET JOURNAL: You have made the environment a major theme for Deutsche Asset Management. How did you get interested in this topic?
KEVIN PARKER: I bought a vineyard in the South of France with a friend in 1995, and we converted it to organic and biodynamic farming based on a personal philosophy. Biodynamic farming is about the sustainability of soil and about creating what we call live soils, as opposed to having soils that become dead as a result of too much fertilizer.
We believed that eventually we could make better wine as a result. And 10 years later, we have seen that’s indeed the case: We were voted the 57th best wine in the world by Wine Spectator in 2005.
WSJ: How did you go from organic wine producer to investing in mitigating the effects of global warming?
MR. PARKER: The vineyard is what started the whole approach toward sustainability. We then looked at renewable energy around 2000, because I felt we couldn’t continue to pollute the planet and get away with it. I made a bunch of personal investments in the sector long before I joined the asset-management business.
When I joined the business [in 2004], it seemed like a natural place to push this theme. Because I felt money had to go into developing all of these technologies to build greater efficiency in the current infrastructure, but also, longer term, to address the issue of a lower-carbon-based economy.
Building Consensus
WSJ: How did you get Deutsche Bank to buy into this idea?
MR. PARKER: That wasn’t easy. It’s very untypical for someone in this industry to take this issue up and be an advocate. Because in typical business, the thought is, “This is a cost, this is a burden.” With Germany being more green than most places in the world, I think we’ve been able to find some early adopters.
We built an internal consensus, and climate change ended up making the list of our megatrends in 2005. Then we launched a couple of products, and to everyone’s astonishment, the uptake was overwhelming. In a very short period of time, we raised $12 billion.
And by the way, of the $12 billion, only $50 million came from the U.S.
WSJ: What is investing in the theme of climate change, anyway?
MR. PARKER: The way we define green and climate change is a little bit different.
The conventional wisdom says, it’s all about new energy—so it’s solar, wind, biofuels, things that are in the bucket of hope. We think that’s the small end of the wedge in terms of the investable universe, because what we’ve got is this enormous $100 trillion global economy that today runs on hydrocarbons. Making the existing plant equipment more efficient and optimizing that, and being smarter about the way in which we use energy, conserve energy and conserve valuable resources is a much more interesting part of the mix.
Sectors of Interest
WSJ: What are some of the specific sectors that Deutsche Asset Management invests in under the climate-change banner?
MR. PARKER: One area that’s of particular interest to me is agriculture. With energy crops and biofuels creating such a stir over the last couple of years, and the debate about food and sustainability and demographic growth causing dislocation in share prices, I asked our climate-change research team to work on a simple question: If the planet goes to nine billion people in 2050, can we feed nine billion people?
There’s enough land on the planet, at conservative productivity rates, to feed nine billion people and grow what we need to produce the energy we need.
What’s wrong with this picture is that there’s a whole host of tariff systems and subsidies that create distortions on the global agriculture markets. Those distortions lead to a lack of capital formation around the logistics and the supply lines in the agricultural markets and also the development of farmland.
As an investor, these are opportunities.
Covering the Spectrum
WSJ: How do you approach new energy and clean technologies’ investments?
MR. PARKER: The developments in those areas are going to have a great impact one day on the hydrocarbon side. So you need to have a footprint in both. We have some products that are trying to capture those changes and those developments, so that we really can cover the spectrum of the available and the potential investable universe in the broad shift from high-carbon to low-carbon.
We want to be involved all along the value chain, from the incubation of small companies and development of new technologies, all the way to the more mature business.
WSJ: Are there any areas of investment that you avoid?
MR. PARKER: There are certain industries that we think are going to face difficulties. We see signposts along the way that companies that are reliant on coal can’t get financing, and that insurance companies are going to start putting those liabilities on balance sheets. Then the coal industry in general is going to start to face some serious headwinds.
I cannot go to the managers [of Deutsche Asset Management] and say, “Let’s get out of coal,” for instance, because there may be, from time to time, some opportunities in coal.
However, what we strive for is for our managers to understand that coal is in the firing line of this debate. This debate is an urgent and really important issue, and they’d better be aware of it.
Winners and Losers
WSJ: If we look ahead to 2040, what kind of industry or sector that we see today would be out of business as a consequence of changing behavior or environmental changes?
MR. PARKER: When there are large dislocations and changes in new technologies, when a new way of doing things burst on to the scene, there’s a sort of adaptability of human beings.
So it wouldn’t surprise me that ExxonMobil is one of the biggest solar operators in the world in 2040. Less than 1% of the world’s energy today comes from solar, there’s a pretty big opportunity there, and let’s not forget that ExxonMobil makes $45 billion a year in profits.
The companies that aren’t going to be around anymore are not going to be around because of mistakes they make, not because of some exogenous forces putting them out of business.
WSJ: What do you think will make a big difference for tackling climate change in coming years?
MR. PARKER: Until you can see the amount of carbon emissions in the atmosphere and the price of carbon every single day, I don’t think the world is going to be sensitive enough to the urgency that is required to attack the problem. So you sensitize everybody to it, you remind them daily about it. Then you put a price on it, and let the market figure it out. Printed in The Wall Street Journal, page R5