Investors Seek Profit in 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 are still a large number of companies that already provide climate-related technologies. Many nations are devoting resources to climate initiatives regardless of Copenhagen, which is one reason these companies are garnering attention.
"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 is intersecting with 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 added that many governments believe coal-fired energy isn't sustainable, given the environmental issues associated with burning coal. That means that while coal is abundant, and abundantly used, in China and the U.S., alternative energy is being rapidly developed, often with government financial backing. Technology focused on efficiency is also growing in importance among 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 manufacturer. Nexans helps transmit energy from producers such as wind farms or oil rigs to the energy grid. The company makes up more than 2% of Mr. Coles' portfolio and he believes the company should strongly benefit from any new climate changes 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 in the company, which has a market capitalization of €1.49 billion ($2.14 billion), is up 26% this year.
German electrical component manufacturer SMA Solar Technology AG, with a market value of €818.8 million, is also 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 group to continue increasing its dominant position in home solar power conversion.
The stock has more than doubled in value this year, closing at €91.81 Friday, from €37.50 at the end of 2008.
One of the main risks to alternative energy and climate-related companies is sluggish global growth. If growth doesn't pick up, alternatives begin to look increasingly expensive compared to standard fuels such as oil or coal. And such price disparities often come when people are trying to save money and cut costs. New climate rules could diminish that problem, but those new rules remain elusive.
The risks of solar investing aren't small. LDK Solar Co., a Chinese solar power company that trades on the New York Stock Exchange, skidded more than 12% on Friday because of funding problems. First Solar, an Arizona-based company on the Nasdaq, has seen experienced remarkable volatility. Its share price fell from more than $300 a share in May 2008 to about $135 a share today.
The recession has hit makers of solar panels hard, Mr. Coles noted. "Profit margins are now unattractive, so you need to be selective," he said.