Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Johnny Russell, investment director and manager of the Scottish Widows Environmental Fund.
Major progress has been made since climate change first attracted the attention of the general public. The United Nations Climate Change Conference in Copenhagen in December 2009 was the latest attempt to reach international consensus on cutting emissions by 2020.
Here, the government recently announced various schemes aimed at increasing locally produced green energy, to encourage a move towards a low carbon economy. The Stern Review: The Economics of Climate Change estimates that markets for low-carbon energy products are likely to be worth at least $500bn per year by 2050 in Britain alone. And this is not solely a UK phenomenon. Governments around the world acknowledge the need to tackle climate change and introduce environmental regulation. Here are three companies that are well placed to benefit from the opportunities thrown up by the growing focus on climate change.
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First up is Greenko (LSE: GKO). The Indian economy is among the fastest growing in the world. The IMF forecasts growth of 7.7% in 2010 and a similar level again in 2011. Although the overriding priority of the Indian government remains to deliver high economic growth rates, its National Action Plan On Climate Change also emphasises the need to tackle carbon emissions. The plan to address the structural shortage of energy in India will inevitably involve continued investment in renewable energy (renewable energy as a percentage of total installed capacity has already increased from 3% in 2005 to 9.7% in 2009).
Greenko operates a diversified portfolio of renewable assets including biomass, wind, solar and hydro. It generates revenue by selling the power it generates to state electricity boards. India's Five Year Plan (2007-2012) envisages an additional 15,000 MW of renewable power capacity being built over that period. Greenko is well placed to participate in this rapidly growing market.
Ricardo (LSE: RCDO), on the other hand, is a leading supplier to the world's automotive, transport and energy industries. Its focus is on delivering clean-technology solutions. In the automotive industry, Ricardo recognises the importance of reducing exhaust pollutants and improving fuel economy (given finite oil reserves). The company has therefore invested heavily in developing leading technology in areas such as clean diesel technology and hybrid and electric vehicle systems. Such products are increasingly being adopted by the global car manufacturers and vehicle component suppliers. It is also involved in wind energy, winning a role in the design of the world's largest offshore wind turbine test facility.
My third pick is Zenergy Power (LSE: ZEN). It provides patented clean energy devices that improve the efficiency of electricity generation, distribution and consumption. Its technology is based around superconductor materials that are capable of conducting electricity without resistance and therefore electrical losses. The uses of this technology include devices that protect power grid equipment against unexpected power surges and the generators used in offshore wind farms.
Governments around the globe are adopting stricter measures to address climate change. All three firms are well placed to benefit.
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