"The London Accord is a unique collaboration between investment banks, research houses, academics and NGOs. The London Accord has produced the first 'open source' research resource for investors in climate change solutions. The CD and website (www.london-accord.co.uk) set out the context for investments in climate change solutions, analyse individual opportunities and discuss the implications for the construction of investment portfolios.

Background

The IPCC shows that the world needs to act to avoid disastrous climate change, and act now1.
The Stern review shows that the overall cost of strong early action is much less than the cost of inaction2.
The International Energy Agency shows the changes in fuel mix and energy usage that are necessary to stabilise greenhouse gas concentrations at a safe level3.
The UN Framework Convention on Climate Change shows how much money is required by region and by technology to realise a scenario that achieves stabilisation4.
The UNFCCC report shows further that 86% of that investment has to come from the private sector. That equates to private sector investment through 2030 in excess of $600bn per year.
The London Accord report shows investors and policy makers by technology how attractive that private investment is, at the end of 2007.
The papers in section A (the Review of the Content and this Executive Summary) give the overview. The papers in section B discuss the context, from public opinion to energy policy. In section C teams from leading investment banks and research houses present reports on individual technologies as investment opportunities. Section D deals with adaptation, and the impact of climate change on investments in the existing economy. Here we also present the legal aspects of investment in low carbon technology. Last but not least Forum for the Future discusses the wider sustainability considerations for investments. Section E is where we present commentary on more advanced issues, from the need for an international standard for the measurement of greenhouse gas emissions at Product-Level, to the role of philanthropic investors and the arguments for and against cap-and-trade and carbon taxes as ways for governments to create economic incentives to encourage investment in low carbon solutions.

The remainder of this executive summary makes the case that investors should pay attention to the changing views of society about climate change, that they need to have a view about the likelihood and timing of changes, and that they need to be realistic about the implications for investments. We show that picking winners and losers is complicated, and fraught with uncertainty, but that it can be done. When investors are ready to take action, we show how to use modern portfolio analysis to generate attractive and robust portfolios. We show how portfolio construction is affected by strong assumptions about an individual technology. We consider the policy implications briefly before closing with the inevitable conclusion that more work is required as the science evolves, and as society responds. There is enough clarity to act now and put CASH IN a portfolio of investments to take CARBON OUT of the economy.

Pay Attention

In B2: The Forces of Change in the Energy Market, Nick Butler states that "If we are fortunate the combination of security concerns, prices and technical progress will come together to offer viable answers to the challenge of climate change. The answer will not be simple, nor, in all probability, will it be singular." At the London Accord's launch conference in March 2007, the Rt Hon Chris Huhne MP warned that real solutions would be 'messy. In B1: Climate Change: the State of the Debate, Alex Evans and David Steven write: "[...]while climate change may have reached a tipping point of sorts in 2006 as far as perceptions of the problem are concerned, the same cannot be said for perceptions of the solution." In D4: Investment in Low-Carbon Technology - the Legal Issues, Lewis McDonald concludes that "low-carbon technology is an area of intense activity and regulations to promote and control these technologies are developing at a fast pace."

These quotes represent a widely held belief that there is an emerging consensus that the world faces a serious problem that requires action now, but that there is no consensus about what to do. The London Accord report attempts to provide some clarity about the options for investors and how to express one's view and beliefs about the public and political will to act, the current and future solutions, and practical steps to react to both the risks and opportunities.

Have a view

If one believes the following three things, then climate change will materially affect future investment opportunities and returns:

population growth is predictable: current demographic predictions are valid and imply a global population of approximately 9-10bn in 2050;
energy intensity is predictable: that the long-term relationship between GDP per capita and energy demand holds true. This relationship, in turn, depends upon assumptions of lifestyle, consumerism and economic structure, e.g. the ratio of services to manufacturing. The London Accord's energy demand numbers are based on the IEA's, which extrapolate from the present on population and economic growth, and assume no discontinuities or unexpected large reductions in population growth;
carbon emissions will cost emitters €30 to €40 per tonne: most economic scenarios seem to arrive at a similar range for the cost per tonne. Any cost per tonne above this range merely intensifies the argument. A cost per tonne below this range definitely softens investment decisions based on climate change. Current ETS trading is around €23, and the average over the past 12 months has been around €20."

(Excerpted from the Executive Summary of the London Accord linked upthread).