As climate change develops into an increasingly concerning issue on the minds of Canadians, an array of compelling investment opportunities are emerging in the environmental realm, industry executives said on Tuesday.

Speakers at an Investment Funds Institute of Canada seminar on environmentally friendly investment prospects told a Toronto audience that climate change is becoming a more significant risk to the performance of equities.

“Climate is something we’ve long identified as a risk for corporations across our equity holdings,” said Elizabeth McGeveran, senior vice president of governance and sustainable investment at U.K.-based F&C Asset Management PLC. F&C, a global asset management firm, has more than $3.2 billion in sustainably managed assets around the world, and acts as sub-advisor to the Scotia Global Climate Change Fund.

“But where there’s risk, there’s also always opportunity,” McGeveran added.

Companies that are putting more effort into managing this risk will benefit going forward, according to Hadley Archer, vice president of strategic partnerships at World Wildlife Fund Canada.

“Stakeholder expectations are changing dramatically,” Archer said. He added that as regulations involving carbon emissions begin to change, companies that aren’t prepared could be impacted significantly. Even within specific industries, Archer said certain companies tend to manage the risk more effectively, which could reward shareholders.

“Within a sector you’ve got huge variation in how exposed companies are to potential climate regulations and carbon risk,” he said.

McGeveran outlined several promising investment themes within the environmental realm. Energy efficiency is one of the biggest opportunities, she noted, particularly as governments begin to set more stringent standards and invest in improved efficiency.

Sustainable mobility is another area of opportunity, since many companies are making efforts to reduce the portion of their carbon footprint that comes from travel. McGeveran noted that transport comprises 14% of global emissions, and is growing quickly.

As an example of an investment opportunity in this area, McGeveran pointed to companies that develop videoconferencing systems. “This is an example of a play that’s actually benefiting from our recession,” she said, noting that such systems represent an investment that ultimately cuts firms’ travel expenses in the long run.

Other compelling areas of investment include acclimatization, water, and companies involved in reducing or managing waste.

In addition, alternative energy represents a significant opportunity, with ambitious government targets and investments set to support the industry going forward. But McGeveran added that so far, investments in alternative energy have largely overshadowed some of these other opportunities. She pointed out that alternative energy represented a hefty $155-billion industry in 2008.

“So many climate funds, so many approaches to climate are overly focused on alternative energy,” she said.

In determining specific investments, McGeveran warned that a meticulous stock selection process is critical.

“There’s a lot of junk out there,” she said. “Rigorous stock selection and valuation, making smart choices is the key to it all.”

Furthermore, the speakers warned that investment funds which are narrowly focused on a specific environmental aspect are likely to be more volatile, and more risky.

In developing the Scotia Global Climate Change Fund in 2007, Scotia Capital pursued a diversified climate change mandate as opposed to a specific focus on an area such as water or alternative energy, in order to reduce risk, according to Alice Fang, director of investment oversight and communication at ScotiaFunds.

“We really wanted to take a broader approach, because it gets very risky,” said Fang, who is also chair of IFIC’s Eco Efficiency Task Force.

She said the company had witnessed very high interest and demand in a climate change-related fund from both financial advisors and investors. “We were hearing more about climate change. It was the one thing that people could generally agree on, because we all can see the effects of climate change.”

IE