An agreement in Copenhagen next month on a new pact to combat climate change is expected to attract long-term investors to invest in companies that are better prepared to handle an anticipated increase in carbon emissions costs. Asset managers believe that a strong political deal at the Dec 7-18 summit, which includes emission reduction targets, could spur investors like pension funds and sovereign wealth funds to adjust their portfolios to account for the long-term risks associated with climate change. This could also potentially benefit firms involved in renewable energy sources like wind or solar, 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, may prompt funds to start adjusting their asset allocations sooner to protect against the impact on companies facing higher costs due to emissions. Essentially, this agreement would act as a global treaty aimed at controlling pollutants. Bruce Jenkyn-Jones, managing director of listed equities at Impax Asset Management, stated that by intervening in the economy to regulate and include the cost of carbon, there will be an impact on products and services as people will be required to pay for carbon throughout 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 outcome of a Copenhagen deal remains uncertain. During a preliminary UN meeting in Barcelona, developed countries downplayed the likelihood of reaching an agreement on a legally binding text, suggesting that it could take an extra 6-12 months. However, developing countries are wary of rich nations reneging on their commitments to combat climate change. They are advocating for a legally binding agreement in December, despite the lowered expectations set by politicians, seeing an 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 like power generation, utilities, and transport will be immediately affected by a concrete deal. Webber mentioned that companies like Germany's RWE could potentially face higher carbon costs, which could account for almost a third of their operating profits in the coming years. He also referenced Warren Buffett's $26 billion deal to buy railway firm Burlington Northern Santa Fe in November as an example of the long-term viability of rails. Webber predicts that an aggressive deal will lead to increased growth rates in nuclear power and solar industries, as well as a major shift from combustion engine cars to electric vehicles. Malcolm Gray, a portfolio manager at Investec Asset Management, believes that industries like sugar, which are energy self-sufficient, will be better equipped to handle emission reductions and will attract investments. However, utilities in the thermal sector and non-diversified aluminum producers will be at risk. As the cost of production increases due to high carbon prices, consumers with limited disposable income and low-margin retail businesses may suffer. Gray also warns that there is more embedded inflation in the world than people are aware of. He stated that there is a possibility of experiencing a slightly more aggressive inflation cycle globally in contrast to the current deflating world. The outcome of the Copenhagen talks could help investors in mitigating portfolio risks by predicting the rise in the cost of carbon emissions and investing in industries that benefit from alternative energy. Sovereign funds and long-term investors are increasingly involved in environmental investing, while private sector participation has been slow. Norway's $400 billion oil fund is investing over $3 billion in firms involved in environmental technologies and encouraging companies to address climate change more effectively. "We are best served by promoting good standards of corporate behavior, which aligns well with our long-term investment objectives," stated Martin Skancke, director general of Norway's Ministry of Finance Asset Management Department, in an interview with Reuters last month. Rabobank believes that the outcome of the Copenhagen summit will provide clarity on the framework for the unlisted Dutch bank, which is already factoring in the cost of carbon emissions as a risk factor when granting credit facilities. Ruud Nijs, head of corporate social responsibility at Rabobank, emphasized the importance of risk mitigation and expressed confidence that business opportunities would arise in due time. He also highlighted that if the costs of climate change were taxed, it would prompt a reevaluation of the credit portfolio. If a customer is now responsible for covering the costs associated with climate impacts, their risk level will significantly increase. The bank has dedicated over 4 billion euros to investments in renewable energy, focusing on clean technology in its credit investment portfolio over the past year and a half. It has provided sole debt financing for the Belfuture solar project, valued at hundreds of millions of euros, and has also contributed 620 million euros in project financing for the Belwind offshore wind farm project. The bank believes that Copenhagen offers a more favorable business environment for conducting transactions. Nijs stated that significant cleantech deals, as well as investments in solar, wind, and biomass technologies, will be automatically produced by the positive outcome. He also mentioned that the pipeline will experience growth.