An agreement in Copenhagen next month on a new pact to combat climate change will encourage long-term investors to invest in companies that are better equipped to handle potential increases in the cost of carbon emissions. A strong political deal with emission cut targets at the upcoming summit could speed up actions by investors like pension funds and sovereign wealth funds to adjust their portfolios to reflect the long-term risks of climate change. This could lead to increased growth for energy self-sufficient companies or those involved in alternative energy sources like wind or solar, while putting pressure on industries with high emissions such as utilities, aluminum, and car manufacturers. A more concrete agreement, such as a legally binding target for emission reduction, could prompt funds to start adjusting their asset allocation now to protect their portfolios from the impact of companies affected by rising emission costs. Essentially, 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 control and internalize the cost of carbon, there will be an impact on products and services as people across the economy will have to pay for carbon. This will particularly affect big energy producers, utilities, and industrials. Impax manages a total of 50 million pounds in global equities for the UK Environmental Agency's Active Pension Fund. The strength of a Copenhagen deal is still very uncertain. During a preliminary UN meeting in Barcelona last week, developed nations expressed caution about reaching a consensus on a legally binding document, suggesting it could take another 6-12 months. However, developing countries remain wary of rich nations reneging on their commitments to take the lead in combating climate change. They are adamant about securing a legally binding agreement by December, despite efforts by politicians to temper expectations. This situation presents a genuine 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 may face higher carbon costs, which could amount to nearly a third of their operating profits in the coming years. Webber also pointed out Warren Buffett's $26 billion purchase of railway firm Burlington Northern Santa Fe in November as evidence of the long-term viability of rails. He predicts that aggressive deals will lead to increased growth rates for nuclear power and solar industries, as well as a shift from combustion engine cars to electric vehicles in the future. Malcolm Gray, a portfolio manager at Investec Asset Management, stated that meeting challenging initial targets is essential. He believes that industries that are self-sufficient in energy, like sugar, will be better equipped to handle emission reductions and will attract investment. However, utilities in the traditional thermal sector and non-diversified aluminum producers will be at risk. As carbon prices rise, the cost of goods will increase, impacting consumers with limited disposable income and certain retail businesses. Gray warns that there is more embedded inflation in the world than is commonly perceived. He mentioned that there is a possibility of facing a more aggressive inflation cycle globally compared to the current deflating world. 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. Sovereign funds and other long-term investors are becoming more involved in environmental investing, while private sector participation has been slow. For example, Norway's $400 billion oil fund is investing over $3 billion in firms involved in environmental technologies and encouraging companies in its portfolio to address climate change more effectively. "We benefit the most from promoting strong corporate ethics. This aligns well with our focus on long-term investment goals," stated Martin Skancke, director general of Norway's Ministry of Finance Asset Management Department, in a recent statement to Reuters. Rabobank believes that the Copenhagen meeting will provide clarity on the guidelines for the Dutch bank, which is already factoring in the expenses related to carbon emissions when assessing credit risks. Ruud Nijs, head of corporate social responsibility at Rabobank, stated, "We will address risk management, and new business opportunities will arise over time. If a tax was imposed on the costs of climate change, it would prompt us to reassess our credit portfolio." If a customer is now responsible for covering the cost of climate change, their level of risk will significantly increase. The bank has invested over 4 billion euros in renewable energy, with all investments in clean technology in the past 18 months. It is the sole debt provider for the Belfuture solar project, valued at hundreds of millions of euros, and has provided project financing for the Belwind offshore wind farm project totaling 620 million euros. "Copenhagen provides a more favorable environment for conducting business with." Nijs stated that significant clean technology deals and investments in solar, wind, and biomass technologies will be automatically generated as a result of the positive outcome. Additionally, the pipeline will see an increase.