An agreement reached in Copenhagen next month on a new strategy to combat climate change is expected to encourage long-term investors to invest in companies that are better prepared to handle an anticipated increase in the cost of carbon emissions. Financial experts believe that a strong political agreement, which includes specific targets for reducing emissions, at the upcoming summit from Dec 7-18 could prompt investors like pension funds or sovereign wealth funds to adjust their portfolios to reflect the long-term risks associated with climate change. This could lead to increased growth for companies that are self-sufficient in energy or involved in renewable energy sources like wind or solar power, while putting pressure on industries that are heavy polluters such as utilities, aluminum producers, or automobile manufacturers. A more concrete agreement, like a legally binding target to reduce emissions, may prompt investment funds to begin adjusting their asset allocation now in order to protect their portfolios from the potential impact on companies affected by rising emission costs. In essence, this agreement would be a global treaty aimed at controlling pollution. 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, the idea that people will pay for carbon throughout the economy will have a significant impact on products and services, particularly affecting big energy producers, utilities, and industrials. Impax manages 50 million pounds in global equities for the UK Environmental Agency's Active Pension Fund, and the strength of a Copenhagen deal remains uncertain. During a preliminary UN meeting in Barcelona, developed countries tempered hopes for reaching a legally binding agreement, suggesting it could take another 6-12 months. However, developing nations are wary of rich countries reneging on their 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 that investors are involved in. He believes that industries such as power generation, utilities, and transport will be immediately affected by a concrete deal. For example, some utilities like Germany's RWE might face higher carbon costs, which could amount to nearly a third of their operating profits in the coming years. Webber also pointed out that Warren Buffett's $26 billion deal to acquire railway firm Burlington Northern Santa Fe in November demonstrates the long-term viability of railways. He mentioned that an aggressive deal could lead to a surge in growth rates for nuclear power and solar energy in these sectors, 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 tough initial targets is unavoidable. He 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 traditional thermal sector and non-diversified aluminium producers are at risk of exposure. As the cost of production increases due to high carbon prices, consumers with limited disposable income and certain retail businesses may suffer. Gray warns that the world is currently facing higher embedded inflation than is commonly understood. He mentioned that there is a possibility of facing a more aggressive inflation cycle globally compared to the current deflating world. The outcome of the Copenhagen talks could help investors mitigate risks in their portfolios by predicting the rise in the cost of carbon emissions and investing in industries that benefit from alternative energy. Sovereign funds like Norway's oil fund are becoming more active in environmental investing, while private sector involvement has been slow. The fund is investing over $3 billion in firms involved in environmental technologies and is pressuring companies to address climate change more effectively. Martin Skancke, director general of Norway's Ministry of Finance Asset Management Department, emphasized the importance of promoting good corporate behavior to achieve long-term investment goals in an interview with Reuters. Rabobank also recognizes the significance of considering carbon emissions as a risk factor in granting credit facilities, with head of corporate social responsibility Ruud Nijs noting that addressing risks and seizing opportunities will be priorities moving forward. Nijs also suggested that taxing the costs of climate change could lead to a different approach to evaluating credit portfolios. If a customer is now responsible for covering the cost of climate-related issues, their risk factor will significantly increase. The bank has made investments in renewable energy totaling over 4 billion euros, with all credit investments in clean technology over 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 us with a more favorable business environment." Nijs said that significant cleantech deals, investments in solar, wind, and biomass technologies will be automatically generated by the positive outcome. The pipeline will also see an increase.