Investors eye climate debate

By KIMBERLY VLACH
As world leaders squabbled at the United Nations climate summit in Copenhagen, investors continued to hunt for companies that could benefit by expected new rules and regulations stemming from the climate debate.
Even if no big, far-reaching agreements are reached, which seems likely in the near term, there still are a large number of companies that already provide climate-related technologies.
"Initiatives are going ahead," said Terry Coles, co-fund manager of F&C Asset Management's Global Climate Opportunities Fund, which has $80 million under management. (Mr. Coles also helps oversee other F&C funds with more than $1 billion in assets.) "It's no longer about the environment. It's a political issue; it's about national security."
Indeed, much of climate change chatter reflects notions of energy security. Mr. Coles points out that "the U.S. wants to be less dependent on Middle East oil, and China wants to reduce their dependence as well."
More practically, many governments used recent stimulus programs to direct money toward domestic alternative energy initiatives such as wind, solar and biomass. "Governments realize there is a need to change fossil fuel-based energy," said Stuart Connell, co-fund manager of the Natural Resources Fund at J.P. Morgan Asset Management with around $5 billion in assets.
Mr. Connell said many governments believe coal-fired energy isn't sustainable, given the environmental issues associated with burning coal. So while coal is abundant, and abundantly used, in China and the U.S., alternative energy sources are being rapidly developed, often with government financial backing. Technology focused on efficiency also is becoming more important to climate-centric investors.
"The smartest way to reduce the need for additional coal-fired energy is to use the energy we're already producing more efficiently," said Mr. Coles, in London.
Europe's climate plays go deeper than makers of wind turbines and solar panels. Mr. Coles of F&C likes Nexans, a French copper-cable maker. Nexans helps transmit energy from producers such as wind farms or oil rigs to the energy grid. The company constitutes more than 2% of Mr. Coles' portfolio, and he believes the company should strongly benefit from any new climate-change rules.
At the same time, Nexans main business—providing copper cables to various industries— remains highly tied to the global economy. If the economic recovery stalls, Nexans will face a challenging 2010.
Shares of Nexans, which has a market capitalization of €1.49 billion ($2.14 billion), are up 26% this year.
German electrical-component maker SMA Solar Technology AG, with a market value of €818.8 million, also is about 2% of Mr. Coles' fund. It produces inverters that convert solar energy into usable AC current in residential homes. "I want a company that has little competition, and at this stage, there are no significant competitors" to SMA Solar. Mr. Coles said he expects the company to continue increasing its dominant position in home solar-power conversion. The stock has more than doubled this year, closing at €91.81 on Friday, up from €37.50 at the end of 2008.
One of the main risks to alternative energy and climate-related companies is the sluggish global economy. If growth doesn't pick up, alternatives begin to look increasingly expensive compared with standard fuels such as oil or coal.