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Investing in a sustainable future

Climate change is a subject that is never far from the headlines. But when it comes to green investing, what are the options? Families in Business chaired a roundtable discussion at the Alternative Investment Conference in Monaco to find out

Roundtable Panel

Bruce Abbott is David Lifschultz's nephew and is vice-president of Lifshultz Investments, a US-based family office that manages a vast portfolio of public and private equity and is focused on environmental investments. He is responsible for technology investments.

John Bender is resident in the Channel Islands where he is involved in family office wealth management. His ancestors founded the law book publishing house, Matthew Bender & Co. in 1887, which has been part of the Reed Elsevier Group since 1998. He advises HRH The Prince of Wales on philanthropic matters as Honourary Chairman of The Prince's Trust Jersey.

David Lifschultz is president of Lifschultz Investments. It invests in a number of environmental technologies, including ballast technology for street lights, which can save up to 60% of the energy on street lights, which is a 60% reduction in carbon emissions for every street light in the world.

Klaus Tischhauser is the MD of responsAbility, a Zurich-based company specialised in social investments in developing and transition countries. They are one of the largest investors in microfinance from the public sector side with assets of about $500 million in microfinance alone.

There are two things around which this discussion will be framed. First, in the US a group of 50 institutional investors with assets under management of $1.75 trillion has agreed to increase their green investments.
This ties into work done by Ceres – a network of interest groups working with companies and investors to address sustainability challenges – which is called the Investment Network on Climate Change Action Plan.

Second, reports suggest that green energy stocks have actually fallen 25% so far this year after several years of sustained growth.

To kick this discussion off, do you agree that climate change presents a risks to investment portfolios?

Tischhauser: I don't think it represents more of a risk than any other major change. Major change to any business means opportunities for some and threats to others. So it is important to any portfolio to assess whether there is some exposure to the changes that climate change will produce.

Lifschultz: I went to a conference where Bill Clinton gave a speech in which he said major corporations have a mandate to reduce carbon emissions. As a family office, I think the issue of climate change presents more of an opportunity for us. The technologies that we invest in, such as ballast technology, can reduce the carbon emissions in the environment because we use 60% less energy.

Another area we work in concerns oil. A lot of heavy oil is being burned, for example, in China, but we can convert it into light oil through our Genoil GHU upgrades. Heavy oil is full of sulphur, which is an environmentally unfriendly form of oil, but the technology that we invest in can reduce its environmental impact.

Incidentally, we don't need a subsidy – neither of these two technologies do. There are 900 billion barrels of heavy oil in the world so it's one of the biggest opportunities around today.

Bender: Some portfolio managers have seen climate change as an opportunity. An increasing awareness of the need to protect the environment in the Western world has supported industries engaged in waste management, recycling and renewable energy. Investment strategies must continually take into account changes in legislation, which seek to limit emissions, for example.  

Nevertheless, in developing economies there is more of a priority placed on growth as opposed to environmental concerns. Another problem is that most professional investment strategies may have a one to two year investment horizon, which makes it difficult to take into account trends in global warming which could occur over a ten year period.

The need to address climate change is more of an ethical rather than an economic question at this stage and there therefore needs to be an impetus from the political process for solutions.

Lifschultz: Whether you agree with the scientific basis of climate or change or not, it's here and now and almost every major corporation in the world is committed to reducing their carbon emissions.

Even Rupert Murdoch, who you might not ordinarily think of as a green or environmentally friendly person, thinks 'I can save energy so if I can cut my companies' energy consumption by 20% I can make a lot more money at the end of the year.' So I personally think more of it in those terms.

Bruce, as a next generation family member, what's your opinion on this?

Abbott: I think global warming is a little overrated, I don't believe in it personally. I invest in technology that seems interesting to me. For example, I picked a company that has a credit card micro payment process – I think if you could eliminate cash, everyone would like that idea.

Tischhauser: So you could become active in microfinance then?

Lifschultz: Microfinance is more lending money to very poor people in small amounts.

Tischhauser: That's where it started but poor people have an incredible variety of needs for other financial transactions such as savings, money transfer and also credit cards.

However, if you deal with poor people and make credit available in too simple a way then it moves quickly to consumption and then they get over indebted.

What other green investment opportunities do we think are out there at the present time?

Lifschultz: There are many areas in the world where infrastructure and technology are pretty basic. If you use a diesel pump then you need road access; if you use electricity then you need an electrical grid; but if you use solar power you can go in to whole areas of Asia and Africa, for example, that don't require roads or electrical grids.

You can install solar pumps and solar panels – which we invest in – and you can irrigate millions of acres thereby lifting millions of people out of dire poverty and into self-sufficiency.

Bender: Canada will come into its own over the next five to 10 years. It is a highly educated but under-populated country that has been in the shadow of the US. If current trends in global warming continue, the navigability of the North-West passage and the supply of raw materials will benefit Canada's position in the world.

Reports suggest that green energy stocks have fallen 25% this year. John, you said environmental investing is an ethical, rather than an economic choice; do you think the fall in these stocks is down to anything other than the current credit crisis?

Bender: In the current distressed market, there has been a focus on protecting capital at the expense of more peripheral investment themes.

Green concerns are seen as a luxury under such circumstances, particularly when the survival of substantial multi-national corporations has been called into question.

Tischhauser: Fifteen years ago we offered "green" products to investors who were clearly people who cared very much for environmental issues, not because they thought it would be more profitable. Today that has changed and society probably cares more than it did before.

I was involved in launching the first Dow Jones Sustainability Index. Companies realised that sustainability was a marketing opportunity that went down well with investors – 'not only are we a fantastic company, but we're also part of this Index'. So there's always the marketing side but I think if marketing works, it's also a sign that society cares and there I see quite a change.

I also believe that in developing countries, where multinational companies often don't behave in the same way as they do in the developed world, for example, they now know that they cannot do whatever they want. So I don't fully agree that it's mainly ethical because people realise good business is ethical business.

Bender: The trade in carbon emissions is interesting but it remains to be seen if it will become a viable mainstream market.

It is essential that there is a consensus in the international community for there to be an effective enforcement of the necessary penalties for polluters.

Tischhauser: If you say there will be penalities then that sounds negative but if you look at it as a monetarisation – something that has not been in the economic cycle or in the money cycle before, I think it becomes difficult to imagine that you can step back from that, once it's introduced.

We will get used to it – something gets a price and then what can happen is that at the beginning the mechanisms are a bit simple and you know you need to adjust here and there and include more countries but going back is not really an option. I think it will become more refined and turn into a real economic model.

Bender: I agree and I think we're moving in that direction but the challenge for us is to get countries like China and India to sign up to this. I don't think it's difficult to get Germany, Sweden, Britain and America to sign up.

Tischhauser: I think getting the consensus from those countries will be simple but the= main issue is that they think in terms of growth – if they're poor they want to develop and a lot of development has to do with energy consumption.

I understand their position and I think we will find a solution, I'm quite positive on that, but it's probably not a simple one and we will probably have to allow developing countries to pollute more or, in exchange, we will give them some technical assistance to develop new technologies.

Lifschultz: Governments have to establish international conventions otherwise it's not going to work. If one country with a huge industrial base emits large amounts of pollutants that go into the air and land as acid rain in another country then it's not going to work.

The general reduction of emissions is really governmental because if someone wants to try to make more money in a country that doesn't have the emissions standards then it disrupts the entire effort because you're just moving the emissions from one place to another and losing a lot of jobs to the country that does not care.

I think ethically you invest in technologies that may not be profitable now because of the long term horizon.

Going forward, are you optimistic or pessimistic about the environmental investing theme? Is it going to work or do you think it's just a fad?

Tischhauser: In general I'm very positive because I see that, slowly and steadily, several aspects that have been out of the economic cycles are being integrated and that only helps all those investments that have value. Alternative investments that do not cause damage must increase in value.

Society has become a bit more mature and realised that the investor has a choice to say that they want to invest in something because of environmental issues – but, of course, it can always be overshadowed by market movements which have nothing to do with environmental issues. But the long term trend I see as completely positive.

Abbott: I think the environment's going to be OK.

Bender: Environmental themes are likely to remain on the political agenda in the Western world. From an investment perspective, however, there will be more of a focus on the immediate demands from the distressed markets. Once there is more stability, it should be possible to concentrate on longer term themes and the environment would certainly be top of the list.

In regards to the developing world, there will be a need to exert political and diplomatic pressure to encourage a constructive approach toward achieving sustainable
economic development.

Click here to read our web exclusive: David Lifschultz gives his view on the economy and what we can do to reduce carbon emissions.

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