The London Accord - Portfolio Investment Analysis Shows Importance of Forestry to Prevent Climate Change

The London Accord - Portfolio Investment Analysis Shows Importance of Forestry to Prevent Climate Change

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12 December 2007

Z/Yen’s contribution to the London Accord climate project concludes

“forestry is the crucial investment”.

A key finding released today (Wednesday, 12 December) as part of the London Accord climate research project suggests that Forestation and Avoided Deforestation are crucial for investors seeking to stabilise CO2 concentrations in the next two decades. The uncertainty surrounding forestry abatement, costs and returns affect portfolio selection, even if a portfolio does not contain direct investment in forestation or avoided deforestation.

In the report, “A Portfolio Approach To Climate Change Investment And Policy”, Professor Michael Mainelli and James Palmer combined thousands of possible investment portfolios for the next twenty-five years ranging from biofuels, to nuclear, solar, hydropower and carbon capture & sequestration/storage (CCS). Their report uses UNFCCC (United Nations Framework Convention on Climate Change), IPCC (Intergovernmental Panel on Climate Change) and London Accord data to analyse what rational investors might do. The report concludes that “forestry might be the most significant part of any portfolio, investment or policy. If forestry’s costs and benefits reflect a real opportunity, fantastic, but if they are illusory it is important to dispel that illusion rapidly.” The report calls for rapid scientific and economic research the reduce the uncertainties on abatement potential and costs surrounding forestry in order to help guide investors.

Professor Michael Mainelli of Z/Yen Group Limited, who also holds the City’s Gresham College Professor of Commerce chair, and James Palmer contributed their report as part of the London Accord, at circa £7M the largest ever collaborative investment research project by City firms and institutions. Michael Snyder, the City of London Corporation’s Policy & Resources Chairman, co-originated the London Accord with Michael Mainelli. Michael Snyder said:

"The London Accord project helps unleash the resources of the market to solve the CO2 problem by raising the quality of investment thinking and establishing sign-posts for the general investment community."

Key points in the London Accord available on the web (see below) are:

Investors should invest now if they believe carbon markets are coming. If prices per tonne of CO₂e rise to €30 to €40, investment portfolios could be constructed that produce both attractive financial and 'carbon returns'.
Energy investment is going to become much, much riskier - this is due to greater uncertainty over the pace of technological development, higher and more volatile prices for oil and gas, and uncertainty about the mechanism for the pricing of greenhouse gas emissions.
Forestry is a big unknown – there is a need to narrow the range of credible estimates for the real extent of abatement potential and the real costs of forestry projects which mitigate greenhouse gas emissions, as well as solidify carbon offset markets for forestry.
Efficiency gains continue to show great potential for financial and carbon returns but need behavioural incentives such as regulation.
Carbon capture and sequestration/storage (CCS) seems an unrealistic investment at prices for greenhouse gas emission allowances below $45 per tonne (approximately €32/tonne).

The London Accord’s theme is “cash in, carbon out”. Private sector investment is crucial to climate change investment (86% of capital investment in energy supply, according to UNFCCC). Much of that investment will be funded through large pension funds and asset managers, who rely on analysis by the financial services sector for investment decisions. The London Accord demonstrates that the financial services sector understands well the implications of climate change: leaders such as ABN Amro, Bank Sarasin, Barclays & Acclimatise, Canaccord Adams, Cheuvreux, Credit Suisse, Herbert Smith, JPMorgan Chase, Merrill Lynch, Morgan Stanley, Société Générale and WestLB co-operated in the London Accord as an “open-source” research project resulting in a 780-page guide to investment for climate change - the largest-ever private-sector investment collaboration into climate change, representing work valued at £7million ($15million).

Sponsors of the London Accord, which follows from the City's involvement in the Johannesburg Summit in 2002, are BP, the City of London Corporation (the authority for the Square Mile business district), Forum for the Future, Gresham College and Z/Yen Group. Herbert Smith and Sustainable Forestry Management also contributed, as did institutions like the Cambridge Centre for Energy Studies, the Center on International Cooperation (part of New York University), the Climate Conservancy, the NextEarth Foundation and River Path Associates.

The London School of Economics and the Santa Fe Institute helped draw the threads of the research together while buy-side firms such as USS, Insight, and Legal & General helped to shape the project to ensure its outcomes will be useful to investors. Observers from the EU, the International Energy Agency, UNFCCC and others have been involved. James Palmer and the London Accord’s Project Director, Jan Peter Onstwedder, are seconded from BP.

ENDS

NOTES

The London Accord – www.london-accord.co.uk

The Report mentioned above is at D5: A Portfolio Approach to Climate Change Investment and Policy

For the complete set of London Accord reports see: http://www.london-accord.co.uk/final_report/

The London Accord contains two reports specifically on forestry:

See also earlier press releases:

Media

For more information from Z/Yen contact Professor Michael Mainelli on +44 (0)20 7562-9562.

For more information on the City of London Corporation and The London Accord contact Greg Williams on +44 (0)20 7332-1455 or +44 (07889) 167205.

To contact London Accord Project Director Jan-Peter Onstwedder ring +44 (0) 20 7948-5979.

About Z/Yen Group Limited – www.zyen.com

Z/Yen is the City of London’s leading commercial think-tank, founded to promote societal advance through better finance and technology. Z/Yen ‘asks, solves and acts’ on strategy, finance, systems, marketing and intelligence projects in a wide variety of fields, such as developing an award-winning risk/reward prediction engine, helping a global charity win a good governance award or benchmarking transaction costs across global investment banks. Z/Yen produces a wide variety of research, including the Global Financial Centres Index for the City of London Corporation. Z/Yen’s humorous risk/reward management novel, Clean Business Cuisine: Now and Z/Yen, was published in 2000; it was a Sunday Times Book of the Week; Accountancy Age described it as “surprisingly funny considering it is written by a couple of accountants”.

Professor Michael Mainelli, PhD FCCA FSI, originally undertook aerospace and computing research, followed by seven years as a partner in a large international accountancy practice before a spell as Corporate Development Director of Europe’s largest R&D organisation, the UK’s Defence Evaluation and Research Agency, and co-founding Z/Yen (Michael_Mainelli@zyen.com). Michael is Mercers’ School Memorial Professor of Commerce at Gresham College (www.gresham.ac.uk).

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Copyright © 1994-2008 - The Z/Yen Group of Companies
Last modified: 15 July 2008

Copyright © 1994-2008 - The Z/Yen Group of Companies Last modified: 15 July 2008

Copyright © 1994-2008 - The Z/Yen Group of Companies
Last modified: 15 July 2008