Mark Fulton and Bruce Kahn

Global Head of Investment Research, and
Senior Investment Analyst for Climate Change
DB Climate Change Advisors

Among investors, widespread interest in climate change and its impacts really began in the mid 2000s. We believe climate change investing is a mega-trend that will be here for another 50 years, if not longer.

Companies must view climate change as a business issue, as an environmental issue, and as a moral and a social issue. How a company discusses these topics depends in many ways upon its audiences. In the United States, for example, right now climate change is looked at more in terms of energy security and cost reductions in renewable energy. In Europe, climate change is also about impacts on the environment. And in China, climate change is viewed more through the lens of pollution and industrial energy policy.

Those who want to make climate change-related investments are looking for what we like to call “TLC” – transparency, longevity and certainty in policy frameworks. Therefore, having governmental and regulatory policies around climate change, mandates, standards and incentives is absolutely essential for investors who must be able to evaluate appropriate risk-adjusted returns.

In the United States, there’s a strong feeling that federal regulations have been on-again, off-again in terms of supporting cleaner energy and alternatives. Many states, however, have proven to be more consistent with their policies and regulations, particularly California, Texas and New Jersey. In Europe, Germany’s policies around climate change are comprehensive and arguably best in class; the United Kingdom has been moving strongly in that direction.

For us, analyzing policy and regulations is the heart and core of what we’re doing as a research group.

Obviously, climate change brings with it a tremendous opportunity for the auto industry to create new products and entirely new models of transportation technology. Vehicle electrification, for example, is the long-run destination for the industry.

Around the world, governments have been pushing fuel-efficiency standards, forcing auto manufacturers to tighten up and make dramatic increases in efficiency. But clearly, the auto industry will need to partner with other industries, such as utilities and power generators, because the infrastructure needs for new modes of transport will be enormous. Auto companies simply can’t solve energy and transportation problems on their own. There’s not much point in electrifying the transport sector if gasoline is replaced with heavy, carbon-burning fuels like coal.

As we move more toward the electrification of vehicles, we must find better ways to play into the power system so that plug-in cars become sources of energy storage. For example, can we harness wind power overnight to charge car batteries? How will the auto industry play into the smart grid to ensure that the power provided for electrification is indeed clean power?

In many senses, climate change is simply another symptom of population growth and the increasing wealth of global populations, which becomes a problem when combined with the use of fossil fuels. We have gone from 1 billion people on the planet in 1900 to 6.5 billion now; and we’re heading toward 9.5 billion by 2050. If all these billions of people want to live like we do in America, then we will place a tremendous burden on the resources of this planet and the environment. Water scarcity is likely to be the next crisis – and potentially an even bigger one than climate change.

Ultimately, the only way we can provide the power, water, transportation and food for 9.5 billion people is by having an enormously powerful deployment of technologies that will allow these resources to work for the planet in a clean and sustainable way.