Climate change opportunities

With energy requirements and climate change remaining key issues, there is a

need for more explicitly green environmental strategies, writes Giorgio Cortiana in the latest issue of UBS Investor’s Guide. The US has developed a comprehensive policy aimed at reducing the growth of emissions and promoting innovation.

The US administration plan calls, among other things, for an 18% reduction in greenhouse gas emissions by 2012, a 20% reduction in gas consumption within 10 years, and the development of more fuel-efficient vehicles. In addition, there are plans for long-term investments in breakthrough technologies needed for larger emission reductions in future, as well as tighter fuel economy standards for cars and light trucks. In short, the political process in support of climate change is well established and gaining momentum and should lead to increased demand for cleaner energy and energy-efficient technology. We therefore believe there are investment opportunities in two broad categories: companies engaged in energy efficiency solutions/services, and those providing cleaner sources of energy. At the sector level, climate change opportunities might arise in particular in industrial equipment, transport equipment, and construction. General Electric (“Buy/Outperform”): UBS analysts believe that GE’s “Ecomagination” growth strategy, which focuses on customer needs for energy-efficient products and services, positions the company well to benefit from increased demand for environmentally friendly products. GE already has leading positions in the North American markets for both wind and natural gas turbines, as well as positions in solar and nuclear energy.

Johnson Controls (“Buy/Outperform”): In the auto sector, the race is on to develop a clean technology in climate change terms. UBS therefore believe there is good demand potential for clean diesel and hybrid cars. Suppliers of fuel efficient components like Johnson Controls will likely benefit due to increased demand.