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Will investors warm to climate funds?

Chris Salih says new green funds from Jupiter and Schroders may have too many grey areas for ethically sensitive investors.

After years of warnings, it seems the world is finally waking up to the problem of climate change.

Public concern has been growing for some time. The past couple of G8 conferences have also seen climate change high on the agenda, reaffirming the intentions of some of the world’s powers to finally address the issue.

Now Schroders and Jupiter are tapping into growing investor demand by launching climate change funds.

Schroders chief investment officer Alan Brown says a crossroads has been reached in terms of opinion on climate change.

He says: “We have reached a tipping point in both political and public opinion. The Government and consumer are willing to do something about it.”

Schroders says its new global climate change fund, to be launched in September, will not be a socially responsible fund.

Brown says: “This is not just about a few wind farms, nor is it an SRI fund. Climate change is going to be the biggest theme for the next 20 years.”

The fund, co-managed by Andrew Franklin and Simon Webber, will invest in a portfolio of 50 to 80 stocks across the five themes of energy efficiency, low-carbon fossil fuels, clean energy, sustainable transport and environmental resources. Its investment style initially will be to choose companies which mitigate climate change before moving to those which adapt to it best.

Jupiter is adding a sterling share class to its Luxemburg-domiciled climate change solutions fund and is also proposing a 75m C-share issue on its green investment trust which launched last year.

Hargreaves Lansdown senior adviser Ben Yearsley says Schroders and Jupiter have found an interesting niche but may alienate green and ethical investors as their boundaries are distinctly grey. He says: “I would be surprised if advisers who use ethical restraints will get involved in this business because of the question looming over nuclear power and just how much these funds will make use of it.”

With emission trading between companies in the East and West, it can be easy to invest in companies that are not in fact doing much to prevent climate change.

The Ethical Partnership director Jeremy Newbegin says: “It wouldn’t be beyond our remit, as we have clients who have more of an environmental focus than ethical. Watering down does not bother me so long as the client is prepared to do it.”

Bestinvest head of communications Justin Modray says: “If you were to benchmark the climate funds, you would probably say they are a subset of green. On the one hand, they will delve into a number of green themes such as the five that the Schroders vehicle has already subscribed to. On the other, they can touch thornier issues.

“I am not convinced that climate funds will do unbelievably well because, as with their ethical counterparts, performance may be somewhat volatile due to their dependency on returns, or lack thereof, in the large-cap sector, which tends to steer away from the ethical ethos.”

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