An agreement in Copenhagen next month on a new pact to combat climate change is expected to attract long-term investors towards companies better equipped to handle an anticipated increase in the cost of carbon emissions. A solid political agreement with emission reduction targets at the upcoming summit could prompt investors like pension funds and sovereign wealth funds to adjust their portfolios to account for the long-term risks associated with climate change. This is likely to benefit firms that are energy self-sufficient or involved in alternative energy sources like wind or solar power, while putting pressure on industries with high emissions such as utilities, aluminum, and car manufacturers. A more specific agreement, such as a legally binding target for emission reductions, could lead funds to start changing their asset allocation now to safeguard their portfolios from the impact on companies affected by rising emission costs. In essence, it would be a global treaty aimed at regulating pollutants. Bruce Jenkyn-Jones, managing director of listed equities at Impax Asset Management, stated that by intervening in the economy to control and internalise the cost of carbon, there will be an impact on products and services as people will have to pay for carbon across the economy. This will particularly affect big energy producers, utilities, and industrials. Impax manages 50 million pounds in global equities for the UK Environmental Agency's Active Pension Fund. The strength of a Copenhagen deal is still uncertain. During a preliminary UN meeting in Barcelona recently, developed countries downplayed the likelihood of reaching a consensus on a legally binding document, suggesting that it could take an extra 6-12 months. However, developing countries are wary of wealthy nations reneging on their commitments to take the lead in combatting climate change. They are adamant about securing a legally binding agreement in December, despite the skepticism of politicians about the outcome. This situation presents a real opportunity for progress. Simon Webber, a fund manager at Schroders, stated that decisions made in Copenhagen will have a significant impact on the growth rates of companies in which you are investing. He believes that industries immediately affected by a concrete deal would include power generation, utilities, and transport. Webber pointed out that some utilities, like Germany's RWE, could potentially face higher carbon costs that could amount to nearly a third of operating profits in the coming years. Additionally, he highlighted Warren Buffett's $26 billion deal in November to acquire railway firm Burlington Northern Santa Fe as evidence of the long-term viability of rails. Webber predicts that with an aggressive deal, the growth rates of nuclear power and solar industries will soar, leading to a major shift from combustion engine cars to electric vehicles in the future. Malcolm Gray, a portfolio manager at Investec Asset Management, stated that meeting tough initial targets is necessary and industries that are energy self-sufficient like sugar will be able to handle emission reductions better and attract investments. On the other hand, utilities in the traditional thermal sector and non-diversified aluminum producers will be at risk. Due to high carbon prices, the cost of goods will increase, impacting consumers with lower disposable income and some retail businesses with low margins. Gray also emphasized that there is more embedded inflation in the world than people are aware of. He stated that there may be a more aggressive inflation cycle globally compared to the current deflating world. The outcomes of the Copenhagen talks could help investors reduce portfolio risks by predicting the increase in the cost of carbon emissions and investing in industries that benefit from alternative energy. Long-term investors like sovereign funds are becoming more involved in environmental investing, while private sector involvement has been slower. Norway's oil fund, a major owner of European stocks, is investing over $3 billion in firms involved in environmental technologies and encouraging companies to address climate change more aggressively. "We benefit most from encouraging good corporate behavior. This aligns well with our long-term investment goals," stated Martin Skancke, director general of Norway's Ministry of Finance Asset Management Department, in a recent interview with Reuters. Rabobank believes the Copenhagen agreement will provide clarity for the Dutch bank, which already considers the cost of carbon emissions as a risk factor when granting credit. "We will focus on managing risks and anticipate business opportunities in due course," explained Ruud Nijs, head of corporate social responsibility at Rabobank. "If there was a tax on the costs of climate change, it would prompt us to reassess our credit portfolio." If a customer is now required to bear the cost of climate change, the risk factor for that customer will greatly shift. The bank has invested over 4 billion euros in renewables, with all credit investments in clean technology over the past 18 months. It is the only debt provider for the Belfuture solar project, valued at hundreds of millions of euros. Additionally, the bank has provided project financing totaling 620 million euros for the Belwind offshore wind farm project. The Copenhagen agreement offers a more favorable environment for conducting business. Nijs stated that significant cleantech deals and investments in solar, wind, and biomass technologies will be automatically generated as a result of the positive outcome. Additionally, the pipeline will also see an increase.