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  Business Times 6 Apr 07
Green is the colour of money as banks ride new wave
From eco-themed stock indices to green business, banks in S'pore are raising awareness among investors
By Matthew Phan

(SINGAPORE) You've read about it in the papers. You've seen it in award-winning documentaries. Month by month, climate change seems to ring ever louder in the public consciousness.

You know it's real when your private banker hands you a 100-page report outlining investment risks and opportunities on the theme.

'Almost every institution now has research of some sort on climate change; a year ago, you could count them on the fingers of one hand,' says Yee Tuck Meng, head of product development for Asia at ABN-Amro Private Bank.

In Singapore, European and US banks are leading the charge. Citigroup published a thick report called 'Climatic Consequences: Investment Implications of a Changing Climate' on Jan 19 this year - the bank's first on the subject. And ABN Amro put out its maiden Eco-market Views report on Jan 25, explaining why eco- awareness surged in 2006.

Not to be outdone, UBS the same month gave its private clients a 100-page report on 'Climate Change: Beyond Whether', outlining the science behind greenhouse gas emissions, emerging alternative energy technologies and attendant risks. Co-authored by about a dozen analysts across UBS's research groups, the report also featured interviews with the likes of consultant Amory Lovins of the Rocky Mountain Institute in the US and Matthias Kopp, finance and energy project manager for WWF (World Wildlife Fund For Nature) Germany.

'The momentum coming to 2007 was clear,' says Kurt Reiman, executive director at UBS Wealth Management Research in Switzerland and an author of the report. 'Almost everyone in the business community knew 2007 was going to be important for climate change, because it's really the first time in years the IPCC (Intergovernmental Panel on Climate Change) is coming out with new information. It's peer-reviewed material, somewhat conservative but representing the consensus on recent developments.'

The Fourth IPCC report - the one Mr Reiman is referring to - is being published in four parts this year, the first time the panel has reported findings since 2001.

The first part, on the physical science behind climate change, was published in February. The second, on the impact of climate change, is due today.

It's not just research. Bankers say private investors are increasingly aware of the climate change theme and want broad exposure, even if they are not yet savvy or comfortable enough to do tactical stockpicking.

To satisfy this demand, banks are building eco-themed stock indices and structuring an array of investment products around them. 'Customers are aware of themes like renewable energy and water scarcity. But they're unlikely to understand the best sub-sector for investment, be it bio-fuels, hydro-power or agricultural commodities,' says ABN Amro's Mr Yee. 'The field is at the stage where customers want diversified exposure.'

As such, ABN Amro last week launched a Climate Change and Environment Index based on 30 global stocks involved in water, waste treatment, clean energy and the like. The bank is structuring retail products on the index and will conduct seminars on socially responsible investing for private clients in Singapore, Hong Kong and Dubai this month and next. Other banks are focusing on specific areas.

For instance, Citibank's Sustainability Mining Index and Credit Suisse's alternative energy index, both created this year. Locally, DBS says it started talking to private clients on climate change a year ago and has introduced structured investments on the theme, as well as on sub-themes like water, energy and agriculture. United Overseas Bank says it offered clients a water-themed structured note in March.

Climate change is not an entirely new theme - banks claim they started as early as 2005, or even 2003.

But in the past six months, it has taken on a greater meaning as some politicians and global leaders voice support. Just this week, in support of environmentalists, the US Supreme Court ruled 5-4 that the government's failure to regulate vehicle emissions standards violates the country's Clean Air Act.

'It seems like a lot of attention is being paid to climate change now,' says UBS's Mr Reiman. 'But in terms of action needed, we're still at the very beginning. It's a long- term trend that will play out in the policy environment over the next several decades.'

Mr Yee says the sector has expanded over the years. At ABN Amro, it started with water stocks in the fourth quarter of 2005 and broadened to include clean energy in 2006. Most recently, the focus is on agriculture, because if land becomes degraded due to climate change, to keep producing enough food, crop yields must improve. Thus, investing in firms that produce agro-chemicals, farm equipment or with good land banks makes sense.

Still, every movement has its sceptics. Arjuna Mahendran, Asia-Pacific strategist for Credit Suisse private bank, says what is really behind alternative power sources is an 'energy crunch' from '2.5 billion people in emerging economies demanding infrastructure and consuming more electricity'.

Credit Suisse started writing about alternative energy in 2003, he says. 'It was the surge in energy prices that really started this whole theme.'

Mr Reiman's comeback? 'Whether you believe it or not is irrelevant. What's important is that elected officials are creating incentives for business to change their practices.'
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