Wall Street Seek Ways to Profit From “Global Warming”

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Author: Matthew Campbell

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Investing in climate change used to mean putting money into efforts to stop global warming. Morgan Stanley (MS), Goldman Sachs (GS), and other firms took stakes in wind farms and tidal-energy projects, and set up carbon-trading desks.

The appeal of cleantech has dimmed as efforts to curb greenhouse gas emissions have faltered: Venture capital and private equity investments fell 34 percent last year, to $5.8 billion, according to Bloomberg New Energy Finance.

Now some investors are taking another approach. Working under the assumption that climate change is inevitable, they’re investing in businesses that will profit as the planet gets hotter.

(The World Bank says the earth could warm by 4C by the end of the century.) Their strategies include buying water treatment companies, brokering deals for Australian farmland, and backing a startup that has engineered a mosquito to fight dengue, a disease that’s spreading as the mercury climbs.

Derivatives that help companies hedge against abnormal weather and natural catastrophes are drawing increased interest from some big players. In January, KKR (KKR) bought a 25 percent stake in Nephila Capital, an $8 billion Bermuda hedge fund that trades in weather derivatives.

(The firm is named after a spider that, according to local folklore, can predict hurricanes.) “Climate risk is something people are paying more and more attention to,” says Barney Schauble, managing partner at Nephila Advisors, the firm’s U.S. arm. “More volatile weather creates more risk and more appetite to protect against that risk.”

Drought is helping spur business at Water Asset Management. The New York hedge fund, which has about $400 million under management, buys water rights and makes private equity and stock market investments in water treatment companies.

“Not enough people are thinking long term of [water] as an asset that is worthy of ownership,” says Chief Operating Officer Marc Robert. “Climate change for us is a driver.”

When investors think about global warming, “there is an overemphasis of its negative impacts,” says Michael Richardson, head of business development at Land Commodities, which advises rich individuals and sovereign wealth funds on purchases of Australian farmland.

The company’s pitch: The gloomy prospect of hotter temperatures, scarce arable land, and rapidly rising populations will make inland cropland Down Under—far from rising seas yet close to Asia’s hungry customers—more valuable. The Baar (Switzerland)-based company worked on more than $80 million in transactions last year, four times its 2011 total, according to Richardson.

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