Tuesday, July 31, 2007

Merrill Lynch to Track Energy-Efficient Companies

Yesterday Merrill Lynch (MER) announced that it's started tracking energy-efficient companies that it considers well-positioned to benefit from tough global warming policies.

The Merrill Lynch Energy Efficiency Index is currently made up of 40 companies from around that globe that fit the criteria of great growth potential from the increased emphasis on energy efficiency and cutting carbon dioxide emissions that cause global warming. The index is divided into four components (from the news release):
  • Integrated plays with a focus on the capital goods sector The global manufacturing industry could improve its energy efficiency by 18-26 percent over all (and at the same time reduce the sector's CO2 emissions by 19-32 percent). While not all of these potential savings are likely to occur without a strong framework of regulation and/or incentives, the potential over time is considerable. The index also highlights companies in the capital goods sector which are best positioned to reduce CO2 emissions and energy consumption across the industry.
  • Fuel efficiency in the automotive industry The confluence of energy security concerns and growing awareness of climate change are fuelling more stringent and widespread regulations on CO2 emissions and energy efficiency. In light of these trends, Merrill Lynch highlights the companies which could benefit from tightening fuel emission standards which are mostly market leaders in new technologies contributing to increased fuel efficiency.
  • Building insulation The area with the largest potential for energy efficiency gains at the lowest cost. The companies included in the index are fully expected to be exposed to double-digit demand growth in the building insulation sector. Merrill Lynch's view of robust demand growth is underpinned by a new wave of legislation, particularly in Europe, targeting this segment of the market.
  • Energy-efficient solutions, including products, applications and industrial processes The market for power semiconductors also looks well positioned for strong growth driven by the need to improve energy efficiency throughout the electricity supply chain from generation, through distribution to end consumption. Focusing on consumption, there are a number of ways that chip companies can lower the amount of energy required including reducing standby power, lowering heat loss in power supplies and the introduction of variable speed drives in motors. The new Energy Efficiency Index includes the leading companies in power semiconductors together with companies which are best positioned in efficient lighting (both CFL and LEDs) and smart metering.
The launch of indices like this one reflects investors' concerns that many companies will be hurt by climate change and the related policies to mitigate it. Investment in companies that are well-positioned for a cleaner and more efficient energy system in the 21st century will do well for our pocket books and for the climate.

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