Climate Change Capital: Green Is the Color of Money

Climate Change Capital is an investment manager and adviser. It makes money on investments, and its investors rely on it to make money for them. But Climate Change Capital it is also an investment manager concerned with curbing climate change. And its investors rely on it to create "wealth worth having" – that is, only to manage investments in commercial opportunities created by the transition to the low-carbon economy.

The company's vision is to make the world's environment cleaner while delivering attractive financial returns to its investors. In only five years of existence, Climate Change Capital has grown from five employees to becoming one of the world's leading investment managers specialized in low-carbon investments, with more than 150 people employed in the UK, North America, Asia, and Europe, and over $1.6 billion of capital under management in its funds.

British biogas

Climate Change Capital's funds include the world's largest private sector carbon fund, a private equity fund which invests in clean technology, a fund that will invest in listed companies in climate change areas, and another that is focused on onshore UK renewable energy projects. Recent moves include a L6 million investment (around US $10.5 million) by Climate Change Capital's private equity fund in the Cambridgeshire-based Renewable Zukunft, a company specialized in renewable energy sources.

The money enables Renewable Zukunft to partner with UK farmers to use their organic waste materials such as green crops and animal manures to produce energy. The process, called 'anaerobic digestion,' involves microorganisms that break down the biodegradable waste material and create methane and biogas as a bi-product. These gases are then used to fire combined heat and power (CHP) generation units sited on farms and other commercial sites.

According to Climate Change Capital, each unit should be capable of producing around 10 million megawatt-hours (MWh) of electricity per year; this equates to the annual power consumption of 2,000 British homes. The environmental benefits of this method are that it first removes waste materials that would otherwise emit landfill gas into the atmosphere, and then uses the methane to produce energy in a much cleaner way than burning fossil fuel. The British potential for anaerobic digestion should look quite lucrative, as there are only around seven biogas units in Britain, compared to 4,500 in Germany and 1,500 in Austria.

Chinese coal and carbon emissions trading

Another investment managed by Climate Change Capital since 2006 involves Zhejiang Juhua Co. Ltd., a Chinese mining company. With the help of Climate Change Capital's Carbon Funds, the Chinese can use a technology to destroy the emissions of a greenhouse gas called flouroform (HFC-23) in the coal extraction process. Flouroform is rated to be 11,700 times more potent in causing global warming than its infamous green house gas brother, carbon dioxide. As this is obviously a good deal for the climate, it is also a good deal for Climate Change Capital.

Through the Kyoto Protocol's Clean Development Mechanism (CDM), which is designed to enhance sustainable investments in developing countries, this scheme produces certified emission reductions (CERs) which can be sold or traded, bringing a return on investment. Over six years, the Climate Change Capital-managed fund receives some 29.5 million tonnes of CO₂ equivalent CERs.

Climate over credit crunch

Investments in low carbon projects are only a part of the business portfolio of Climate Change Capital. The investment manager also provides financial, strategic, and policy advice to governments and companies looking for opportunities to combine profit potentials with greener credentials.

Additionally, Climate Change Capital is now investigating investments in energy-efficient commercial buildings. According to the European Commission, around 40% of the EU's GHG emissions come from buildings, and 50% spills out of commercial buildings. So in this market, there should also be room for emission improvements.

With the financial crisis looming on a global scale, suspicions could rise that green investments could be more difficult to finance in the future. But, for Climate Change Capital, the credit crunch is no reason not to invest in the future.

In a recent comment article in The Times of London, Climate Change Capital co-founder and Vice-Chairman and Copenhagen Climate Councillor James Cameron wrote that there is all the reason in the world to address climate change now instead of waiting. "The fortunes of the 21st century will be in the protection, not the destruction, of the planet. We can create wealth worth having. We have to acknowledge that right now climate change is still seen by many as a threat for the future – perhaps merely a risk approaching slowly from afar. But the best evidence we have of the physical consequences of climate change is that we face catastrophic losses over a century and real economic losses within years . . . So we have no option but to turn our economic system towards the solutions to the problem," he wrote.

Sustainable Returns

From an investment point of view, this position of Climate Change Capital seems to coincide with recent figures from Greentech Media, Inc. The numbers show that the clean energy sector continued to attract a growing amount of investment capital in the third quarter of 2008, irrespective of the ongoing financial credit crunch. To investors interested in sustainable returns, sustainable solutions seem to remain attractive.

Further, for Climate Change Capital the financial crisis might only be a short-term phenomenon, as investors who have put money into Climate Change Capital have their investments locked into 10-year periods. This should give the financial storm time to pass, leaving Climate Change Capital relatively unaffected.

To judge from the track record, the Climate Change Capital indeed does look like a stable enterprise, as the investments it manages are spread over a wide range of different projects and funds. In fact, Climate Change Capital has so far managed to create new funds every year of its existence. This years' new fund is called the Global Environmental Opportunities Fund, which was introduced in October 2008.

Financial crisis or not, climate crisis or not, there are still opportunities to tackle climate change while still making profits. Business is the key. And with the right approach, the color of money can indeed be very green.