On January 12, Global Head of Deutsche Asset Management (DeAM) Kevin Parker delivered a keynote speech at the United Nations’ Investor Summit on Climate Risk and Energy Solutions in New York. Held every two years, it is the preeminent forum for leading institutional investors from around the world. At the gathering, Parker discussed the implications of climate change for capital markets and investor portfolios.

Despite that fiscal retrenchment over the last 12 months has caused a global slowdown in new government policy and legislation encouraging cleaner energy, Parker’s message to the audience − composed of investors representing more than USD 22tn in assets − was a “simple and optimistic” one.

Essentially, in spite of the headwinds, the global investment community is on the move as never before; awareness among investors of both the risks and the opportunities inherent in climate change continues to grow strongly; and clarity about the need for action continues to increase.

Parker cited a recent report on climate risk published by leading global investment consultant, Mercer, which shows “attitudes across the industry are becoming more educated and sophisticated.”

In response to investor concerns about risk, he also pointed to a growing number of strategies designed to help investors understand and hedge climate-change investment risk. These include several fixed-income strategies DeAM has created to help its clients indirectly manage the physical dangers, as well as the regulatory risks posed by climate change. Political, social and economic drivers are also fuelling interest in the asset class, he noted, including the need for energy security, as evidenced by turmoil in 2011 in the Middle East.

He also weighed in on the topic of natural gas, saying: “I am a strong believer in a swift switch from coal-generated power to natural gas as long as the gas is extracted in an environmentally responsible way.”

Other positive signs of traction in climate-change investment that Parker highlighted include:

• The increase in total investment in clean energy and energy-efficiency markets, from only USD 103bn first three quarters of 2010, to nearly USD 140bn in the first three quarters of 2011;
• Vast and varied opportunities in infrastructure both in developing countries needing to expand their energy infrastructure, and developed economies increasingly shifting from high- to low-carbon energy;
• Huge new opportunities in agriculture, particularly for private equity investors;
• An impending global shortfall in water, which will drive a shift towards husbanding water as a renewable resource, creating substantial opportunities for new technologies and business models;
• Retrofitting opportunities in real estate, as buildings are responsible for 42% of global energy consumption and 40% of global carbon emissions.