At Evercore Pan we have always liked the green themes for business. A couple of our largest clients have been most successful in seeing the opportunities the drive for greater fuel efficiency and new ways of generating power present to engineering businesses. We have as one of our central tenets about the way the world is going the likelihood that more and more resource will be devoted to alternative energy, to fuel efficiency and to new ways of powering vehicles and heating buildings.
There is an ETF way of investing in this theme. You can buy an ETF which gives you exposure to a global portfolio of clean energy company shares. Despite our belief in the theme, we have not yet bought any of these for our clients.
In 2008 we ruled out this ETF because we were negative about all share markets, and did not see how clean energy shares could buck such a savage trend. In 2009 we had longer internal debates about it. Some colleagues thought clean energy would come to the party in 2009. They could argue that these shares would recover with world markets. A new President in the USA was committed to joining the world consensus on the need to tackle rising carbon dioxide emission levels. There would be a new world conference which in turn was likely to ratchet up the requirements for alternative energy and fuel savings.
We still did not buy them. Our concern about levels and growth rates of income made us cautious, as the yield is low on these types of investment. Other markets and assets seemed to offer better returns. Whilst there is plenty of talk about the green prospects, turning them into hard cash and profit is proving time consuming and sometimes difficult. The election of a "greener" President may make a difference, but the US Congress and Senate, and the US people, are still reluctant to put their full weight behind CO2 reduction if it means sacrifice or higher costs and taxes. We decided to wait and see. That proved to be a wise call in 2009, as the clean energy ETF has produced a return of -7% compared to a return of 42% from a Far East (ex Japan) equity ETF for the year to date.
Will Copenhagen make a difference? Not a lot. Assuming they do reach some agreement on new C02 reduction targets and on money transfers from rich to poor, it does not change the politics of the USA nor the yields, dividend growth rates and business challenges of the companies. It may change sentiment, depending on how strong the text is. We will keep you posted on that.
The truth of the position is that whatever comes out of Copenhagen, green politics have taken a bit of a knock in recent weeks. The leaked emails from the University of East Anglia on climate science have strengthened the hand of sceptics to the point where the media will now put an alternative case. In Australia the Leader of the Opposition lost his job by being too enthusiastic about the policy consequences of global warming theory. In the USA the President has shown that he intends to spend most of his political capital on health care, and some on the war in Afghanistan. He will not have a lot left over to battle the Congress and arm wrestle the Senate on climate change.
Wise companies will continue to build recycling, fuel efficiency and green products into their approach. There is money to be made from it. We are still not ready today to buy the clean energy ETFs, but we will have another look when we know more about Copenhagen's outcome.
Clean energy ETFs and funds buy shares in companies specialising in clean energy production or the manufacture of equipment and technology for the clean energy industry. For example, this includes hydroelectric and thermal power plants, generating energy from waste, solar energy and photovoltaic cells, wind turbines, tidal power and heat recycling. Over half of the geographic exposure of the S&P Global Clean Energy Index is to the US, China and Germany.