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UBS Wealth Management Research Publishes "Climate Change: Beyond Whether"
As scientists bank on 2007 to be the warmest year since records began, this new report provides comprehensive, cutting-edge guidance on what climate change means for the individual investor
UBS Wealth Management Research today issued the research report, "UBS Research Focus - Climate Change: Beyond Whether," which taps into the most up-to-date research on climate change to offer a detailed, sector-by-sector breakdown identifying key investment opportunities and risks for the individual investor.
"Whether or not you agree with the view that human activity is influencing the climate system is largely irrelevant to the investment thesis. What is important is that numerous policies to combat the threat of global warming are converging to influence people's behavior, alter the risk profile of various businesses, and improve the investment outlook for others," said Klaus Wellershoff, global head of UBS Wealth Management Research, and Kurt Reiman, head of thematic research for UBS Wealth Management Research.
According to the report's findings, investors who seek to incorporate climate change risks and opportunities into their portfolios have options that span a wide range of asset classes, including:
Equity-related strategies include underweighting sectors, industries and companies that are highly carbon-intensive and have little potential to adapt to new technologies;
Investment in companies exposed to renewable and low-carbon energy production and energy efficiency;
Investment in theme funds focusing specifically on climate-change mitigation;
Investment in equity baskets, certificates and indices on specific investment areas such as white biotech, photovoltaics, and biofuels;
Investment in venture capital firms and private equity funds focused on environmental technology;
Socially responsible investment (SRI) funds and indices that follow one of three approaches: one that includes only the best companies, one that excludes laggards in the field, and one that focuses on the highest improvement potential;
Fixed income strategies that reduce exposure to companies that face heightened credit risk because of future policy measures and un-hedged exposure to severe weather events, such as hurricanes and floods;
Investment in renewable bonds issued by governments and project development companies to finance specific clean energy projects.
UBS Wealth Management Research notes that although technological solutions to lower emissions are available, global policies to create incentives to reduce emissions are virtually nonexistent. The most important driver for mitigating climate change, and consequently the most important driver for the resulting investment risks and opportunities, is the future regulatory framework.
There are three reasons for this:
Increasing greenhouse gas concentrations is the result of market failures. Generally speaking, greenhouse gas emissions do not yet incur a cost;
Few cost-competitive alternatives to fossil fuels. Many renewable energies and energy-efficient technologies and services, which may contribute to climate change mitigation, are not yet cost-competitive when compared to energy from oil, natural gas, and coal;
High national strategic importance of energy;
It is the prospect of individual behavior proliferating on a large scale, combined with more stringent regulation of greenhouse gas emissions, which makes opportunities related to climate change mitigation a compelling investment case.
Winners and losers from climate change are not always obvious The report notes that to limit the cost impact of regulations, industries that emit greenhouse gases can invest in low-carbon technology, trade emissions rights, invest in offset projects, and lobby to block or challenge regulation. Because of this, companies with low greenhouse gas exposure within a particular polluting industry are in a relatively strong position. In addition, companies manufacturing greenhouse-gas-intensive products may also be directly affected by greenhouse gas regulations.
UBS Wealth Management Research believes that sectors whose operations depend on climate conditions have a high level of physical exposure, as do sectors whose operations would be interrupted by extreme weather events. Examples include agriculture, fisheries, forestry, water utilities, and water-intensive operations, but also tourism, healthcare, insurance, and operations sensitive to storms, such as offshore oil drilling.
The risk of future climate change events on companies and industries includes heightened regulation, increased impairment of physical property, loss of revenues and erosion of reputation, individually or in combination.
The more incentives that emerge to encourage people to limit greenhouse gas emissions, the greater the investment opportunities related to climate change mitigation.
The opportunities related to climate change mitigation fall into two broad categories:
products and processes that deliver improved energy efficiency; and
development of renewable/low-carbon energy sources.
Those sectors, and the investment areas within them are best positioned to benefit from the changing climatic and regulatory environment.
UBS is one of the world's leading financial firms, serving a discerning global client base. As an organization, it combines financial strength with an international culture that embraces change. As an integrated firm, UBS creates added value for clients by drawing on the combined resources and expertise of all its businesses.
UBS is the world's largest wealth manager, a top tier investment banking and securities firm, and one of the largest global asset managers. In Switzerland, UBS is the market leader in retail and commercial banking.
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Karina Byrne Tel. +212 882 5692
New York, January 31, 2007
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