it's not a great omen for next week's
climate talks in Paris that Britain's
chosen today to slash subsidies for
carbon reduction scrap the billion pound
support for carbon capture and storage
and exempt the heaviest industries
through environmental tariffs binding
deal was already going to be hard to
secure in Paris with the US wary of
anything which would need support from a
Congress which remains in denial
mentioning global warming at any
investment conference brings out plenty
of skeptics in the investment community
who share the view of most of the
Republican primary contestants that is
that the whole thing's a scam cooked up
by left wingers yet even these investors
who reject the scientific consensus
should be paying attention to what's
going on with a climate that's not
because of rising sea levels although
anyone with a very long investment
horizon might want to avoid investing in
low-lying city property it's not because
of worsening natural disasters or damage
to farmland either although those who
invest in catastrophe bonds really
should be concerned the real reason that
investors need to pay attention to the
climate simply that so many others are
beginning to do so they're screening out
the biggest carbon emitters or pressing
for change at companies they hold this
week in sh'erit aliens said that it was
going to sell 225 million euros of
shares and run off 3.9 billion euros of
bonds in big coal producers and power
generators as part of a wave of
investors imposing environmental filters
the price of coal that's the red line
here adjusted for inflation has
collapsed recently something that
environmentalists have tended to be
delighted about but the blue line
suggests that there should be a little
bit less smug while the prices collapse
thanks to weaker Chinese economy and the
opening of new minds the production
shown by this blue line is only very
very slightly down from its recent
record highs it is of course the amount
of cold dug up and burnt which matters
to the environment not the price still
there are a couple of decent reasons why
an investor might reasonably worry about
exposure to carbon
tensive companies first of all it leaves
them exposed to the risk that
politicians will finally take serious
action no matter how unlikely that may
seem at the moment that's a risk that
anyone exposed to high carbon companies
is automatically running there is some
slight recent evidence that companies
which cut the amount of carbon emissions
they produce per unit of sales have
outperformed so you can see on this
chart from blackrock it divides up
companies into the quintiles that is the
the groups of one-fifth each that have
done the most and the least to improve
in terms of carbon so reducing carbon
these guys at the top clearly
outperformed the wider market over the
past couple of years but it hasn't is
not a lot of evidence that this has
worked over a longer period but of
course the companies that are most
likely to improve are those which are
the worst at the moment so this isn't
necessarily an argument for buying
companies which have already made the
effort quite the opposite maybe you
should be buying those which are
currently the worst secondly holding
smokestack industries makes you a target
for the green lobby pension funds
insurers and big brands keen to protect
their public image it's this second risk
that's really the most important the
more institutions that join the
divestment campaign the more damage will
be done to shares in coal miners oil
companies and power generators other
investors should be paying attention but
because they want to do their bit for
the climate but because they want to
sell before the price falls smart
investors shouldn't just try to get out
early they should also prepare to get
back in matters that might sound if
institutional selling drives the price
down enough to create a significant
carbon risk premium it'll be a great
buying opportunity you'll be rewarded
for holding those big polluters after
all as British Chancellor George Osborne
managed to demonstrate today when the
going gets tough politicians will
usually choose industry over the
environment so that means staying out of
coal miners for the moment but being
ready to buy back in when prices get
really
stressed