To get the best returns from portfolios long-term, analysts and investors need to identify companies that will perform strongly within a society addressing climate change, according to an expert on ethical investing.
"The pricing of carbon...means that the business fundamentals for so many sectors have now changed," Responsible Investment Association Australasia executive director Louise O'Halloran said in a presentation in Sydney yesterday.
To identify which companies will perform in a climate conscious environment, more emphasis will be placed on researching the way organisations perform their core activities, O'Halloran said.
She cited the difference in the impact a new law in the US has had on two competing firms, which requires energy companies to reduce their energy emissions by 25 per cent by 2020.
In the comparison presented, the new legislation would reduce Exelon Corporation's profit by 0.8 per cent but would cause its direct competitor, American Electric, to experience a fall in profit of 18.7 per cent.
"This is because Exelon is heavily invested in nuclear fuels and fire fuels, and has made great leaps and bounds in energy efficiencies," O'Halloran said.
"On the other hand, American Electric is almost solely devoted to coal, has a tiny renewables portfolio, and has done almost no work in energy efficiency," she said.
For smart business people, situations like this present an enormous opportunity, O'Halloran said.
