Climate Change Investing Ain't Too Hot, Eh?

♠ Posted by Emmanuel in , at 3/31/2008 12:40:00 AM
The Bjorn Lomborg "global warming doesn't matter" set may be pleased by this news. While perusing today's edition of the Wall Street Journal, my eye was drawn to an ad asking me to dress up Zwinky for a global warming investment fund. Apparently, DWS Scudder, an asset management subsidiary of Deutsche Bank, has just set up a fund whose cause celebre is global warming. Call it an offshoot of the oh-so-trendy socially conscious investing. (Do view the slick videos about the DWS Climate Change fund if you've got the scratch.) Anyway, the fund info sheet has this to say about why future opportunities are plentiful in this area:
  1. Due to scientific analysis, governments are regulating, creating economic and business opportunities;
  2. Carbon prices are emerging and are central to the whole process;
  3. Some corporates will take action on competitive and reputational grounds;
  4. New technologies will play a central role in mitigating the problem;
  5. These all interact with each other to create a dynamic pool of investment opportunity.
The rationale sounds pretty good to me, and the chart above depicting investment opportunities (click for a larger image) seems straightforward. However, the fly in the ointment is this particular fund isn't doing very well at the moment. In fact, it is underperforming the benchmark MSCI World Index. So, what's the lesson here? These are a handful of possible explanations:

  1. The portfolio manager has not selected the "best performing" green firms;
  2. While climate change-conscious firms will do better in the long run, short-term returns are volatile;
  3. It doesn't pay to be green.
The first explanation is indeed possible. However, the film clip mentioned above suggests that the second one is more at work, as you would expect. Meanwhile, the acolytes of Lomborg would probably take the third. In any event, this particular fund has only been open since September 2007, so it will take some time to establish a long-run pattern. Besides, there a whole lot of other funds touting similar socially responsible credentials so this sample of n=1 isn't exactly representative. Perhaps in a downturn of this severity everyone will get hit--the good, the bad, and the ungreeny.