How do investors factor climate change into their stock-picking equation?

Corporations are catching on to the risks and opportunities of global warming.

from the March 12, 2007 edition

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After years of warnings from environmental and socially responsible investing groups, it seems that corporate America is catching on to the risks of climate change. Investment banks, insurance companies, and big investors are taking a close look at the greenhouse gases that companies are emitting. So how can you avoid a portfolio meltdown if the planet heats up? The Monitor's Laurent Belsie sat down with Matt Patsky, portfolio manager for the Winslow Green Growth Fund in Boston, to get some answers. Here are excerpts of their conversation:

Are we at the tipping point in terms of corporate awareness of global warming?

Mr. Patsky: Yes. It certainly appears that there has been a growing level of awareness. It started with smaller companies, but we are now seeing the large multinationals actively engaging in a strategy to look at their carbon footprint and look at ways of reducing that carbon footprint.

Which companies are most at risk?

Patsky: If you look at any company that's in chemicals or in the extraction of oil or natural gas, those companies are the most at risk.

Who are the winners?

Patsky: The winners are going to be those that are providing solutions. One of our holdings is Fuel Tech.... Coal is still providing 50 percent of the electric needs of the United States. And Fuel Tech has a solution that allows for the more efficient burning of coal, which is beginning to be rolled out into a lot of coal-fired plants in the US.... Obviously, all the renewable-energy companies are going to win in different ways.

What should investors do?

Patsky: We need to change the mind-set of investors in the US. Just looking at a financial report isn't enough in determining the value of a company. You need to understand – from sourcing through disposal of a product – the life cycle of a company's products and its impact on the environment. Increasingly, those external factors that have long been ignored are going to become part of the cost structure of that company. And that's going to end up being reflected in the valuation of the company.

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