An agreement in Copenhagen next month on a new pact to combat climate change is expected to attract long-term investors to companies that are better equipped to handle a potential increase in the cost of carbon emissions. A strong political deal with emission reduction targets at the upcoming summit could prompt investors like pension funds and sovereign wealth funds to adjust their portfolios to reflect the long-term risks associated with climate change, according to asset managers. This could lead to increased growth for companies that are energy self-sufficient or involved in alternative energy sources like wind or solar, while putting pressure on industries with high emissions such as utilities, aluminum, or automobile manufacturers. A more concrete agreement, such as a legally binding target for emission reduction, may encourage funds to adjust their asset allocation now to protect their portfolios from the impact of rising emission costs. In essence, it would be a global treaty to regulate pollutants. Bruce Jenkyn-Jones, managing director of listed equities at Impax Asset Management, stated that by intervening in the economy to regulate and incorporate the cost of carbon, there will be widespread impacts on products and services as people will be required to pay for carbon. 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 potential deal in Copenhagen remains uncertain. During a preparatory UN meeting in Barcelona, developed nations tempered hopes for reaching an agreement on a legally binding text, suggesting it may take an extra 6-12 months. Developing countries are wary of rich nations reneging on commitments to combat climate change and are pushing for a legally binding deal in December. Despite politicians lowering expectations, there is still a significant 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 such as power generation, utilities, and transport will be immediately affected by a concrete deal. For example, companies like Germany's RWE could potentially face higher carbon costs, equivalent to almost a third of their operating profits in the coming years. Webber also pointed out Warren Buffett's $26 billion deal to acquire railway firm Burlington Northern Santa Fe in November as evidence of the long-term viability of railroads. He 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, stated that meeting challenging initial targets is unavoidable. He mentioned that industries like sugar, which are energy self-sufficient, are better equipped to handle emission reductions and will attract investments. However, utilities in the traditional thermal sector and non-diversified aluminium producers will be at risk. The increased cost of production due to high carbon prices will result in higher prices for goods, impacting consumers with limited disposable income and high-volume low-margin retail businesses negatively. Gray highlighted that the world is currently experiencing more embedded inflation than is commonly understood. He mentioned that there is a possibility of experiencing a more aggressive inflation cycle globally compared to the current deflationary trend. The outcome of the Copenhagen talks could help investors mitigate portfolio risks by predicting the increase in carbon emissions costs, and investing in industries that benefit from alternative energy. Sovereign funds are increasingly involved in environmental investing, while private sector involvement has been slow. Norway's $400 billion oil fund, a major owner of European stocks, is investing over $3 billion in firms working on environmental technologies and urging companies to take stronger action on climate change. "We believe it is beneficial to promote good corporate behavior, which aligns well with our long-term investment goals," stated Martin Skancke, the director general of Norway's Ministry of Finance Asset Management Department, in an interview with Reuters last month. Rabobank also emphasized the importance of considering the cost of carbon emissions as a risk factor in providing credit facilities, noting that addressing this risk will lead to both risk mitigation and new business opportunities over time. Ruud Nijs, head of corporate social responsibility at Rabobank, mentioned that if the costs of climate change were factored into taxation, their approach to assessing credit portfolios would need to be reevaluated. If any of our clients are now required to bear the cost of climate change, their risk exposure will undergo a significant transformation. The bank has allocated over 4 billion euros towards investments in renewable energy, with all recent investments in clean technology within the credit investment portfolio. It is the exclusive debt provider for the Belfuture solar project, valued in the hundreds of millions of euros. Additionally, the bank has provided project financing for senior debt and equity amounting to 620 million euros for the Belwind offshore wind farm project. "Copenhagen provides a more favorable environment for conducting business." Nijs stated that significant cleantech deals and investments in solar, wind, and biomass technologies will be generated as a result of the positive outcome. Additionally, the pipeline will see an increase.