Trucost Blog

Contrary to the fears of many developing nations that reducing carbon emissions will damage their economies, CFI believes, like Lord Stern, the former World Bank economist, that "tackling climate change is the pro-growth strategy for the long term."

His 2006 climate change report concluded that inaction would cost 5%-20% of GDP every year, whereas the cost to the global economy of tackling the issue head on would be just over 1%.

Arresting pictures of dried up parts of the Amazon basin are a salutary reminder of just how serious the problem is. But reducing the world economy's carbon footprint will be driven by economics and business sense and encouraged by governments through a mix of carrot and stick initiatives.

For instance, the UK Government has introduced a tax on CO2 emissions through the CRC Energy Efficiency Scheme, which will potentially affect the profits, dividends and the share prices of carbon-hungry companies.

Stricter regulation and tax incentives coming from governments will have a trickledown effect, impacting business leaders' commercial decisions and investors' share and fund buying preferences.

Along with FTSE International and leading environmental data provider Trucost, Carbon Footprint Investments Plc has designed a FTSE 350 index that weights investments to more carbon efficient companies. Simulated past performance using data from these sources indicates that enhanced returns can be achieved in addition to reducing an investment's carbon footprint.

And the investment argument for carbon efficient investing will grow, as more and more companies fall under the CRC scheme and the penalties for carbon hungry companies start to have an impact where it really hurts - on the bottom line.

Given all of the above, private investors can no longer afford to ignore the potential impact of climate change regulation and legislation on their investments and financial plans.

Carbon-hungry companies are going to be increasingly penalised by revenue-deficient governments for the energy they consume and the carbon they emit. Careful note of these factors will have to be taken by investors from now on.

The companies focused on reducing energy consumption also tend to be those cutting costs and those most in tune with their business operations. As such they can be the better managed, more operationally effective companies and so those able to gain an advantage over their rivals.

Hence, following a carbon-efficient strategy can naturally lead to finding better investments.

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