Investing between the horns of a dilemma

A dispute between developers and Greenpeace in Spain highlights the risks that investors are already running as climate change begins to bite. Cases like this signal that people are beginning to differentiate between climate- related high and low risk investment. Since most sectors of the economy will be hit by both climate impacts and energy constraints, low risk investments are bound to rise in price. This is simply because there will not be enough of them.

And here is the dilemma: If you ignore the issues, climate risks build up on your balance sheets and sub-prime look may look like a side show. But if you take a prudent line, you might as well pack up 4/5 of your business and go home (but watch the effects of reduced lending on the wider economy and hence on your asset values).

Alexander Ballard Ltd suggests a middle way. We have been helping a leading Mexican bank to explore the notion of 'Environmental Arbitrage'. This recognises that sustainable profits will be easiest when risks can be assessed - and the capacity can be built to manage them.

Such an approach can build the social and economic capital that a climate change-responsive world needs. It also makes money as risk is turned into opportunity. Our strategic approach to capacity building provides a vital framework on which to build such efforts.

High capacity organisations can build hospitals, schools, factories etc which are resilient to climate impacts, which use a tiny fraction of the carbon, and can do so with strong Net Present Values - sometimes before climate change is brought into the calculations.

But if you invest with your eyes closed, it is all too easy to lock out strategic options for the life of the investment - e.g. to make saving energy very difficult as the cost of carbon rises.

The finance sector is uniquely placed to exploit these moments. Changes to fit within a carbon economy, to increase climate impacts resilience, are by far most achievable at the moment when you invest in projects.

• Seize the moment and see more resilient investments, better projects serving users better which are more adapted to a low carbon high impact economy, thereby helping support social change since they send messages that there is hope and do not stimulate social resistance to change.



• Miss the moment and become locked into overpriced assets that cannot handle a climate impacted and low energy economy, with worsening operating costs (e.g. for insurance and energy) and with little ability to respond to them, thereby leaving users of services with needs that are less and less satisfied and very resistant to pricing & other measures to reduce carbon.