Interest in climate change among investors has been growing over the past two years, due largely to escalating public anxiety. As severe and unpredictable weather conditions have occurred with growing frequency, and concern groups have become increasingly vocal about the need to curb carbon emissions, climate change has shot up the public agenda, forcing governments into acknowledging its existence and its man-made origins.

Last month, the Intergovernmental Panel on Climate Change, the scientific body set up by the United Nations to study climate change and establish an international consensus on its causes, released its fourth report, stating that global warming was an unequivocal fact.

The report said that the chances were greater than 90 per cent that global warming had been caused by the burning of fossil fuels and other human actions, and predicted that temperatures could rise by four degrees Celsius in coming centuries. In the previous climate report released in 2001, the panel said it was only 66 per cent probable that human activity was responsible for the warming of the Earth.

The new report, which is endorsed by more than 200 countries, including China and the US, has been viewed as an official acknowledgment by the international community that global warming is a man-made problem and reflects a growing willingness to tackle the problem.

According to a Citigroup report on climate change, entitled Climatic Consequences: The Investment Implications of Climate Change, several countries, including the US, are on the verge of a 'tipping point' that would result in greater regulatory involvement in climate issues. The US has a long history of opposing global initiatives to curb greenhouse gas emissions, but now leading candidates for both the Democratic and Republican presidential nominations are supporting the introduction of mandatory emissions limits.

'There has already been a move to regulate greenhouse gases, ranging from international conventions sponsored by the UN to legislation at the state level in the US. Importantly, companies with international operations are increasingly subject to various emissions regulations and standards in key markets, most notably today in the EU,' Mr Raslan said.

He said the issue for investors was no longer whether climate change was occurring, but how investors could leverage the opportunities created as a result of the way in which governments, regulators, corporations and individuals were reacting to the perceived climate change threat.

In its climate investing report, Citigroup has defined the consequences of climate change in terms of three categories: physical implications, regulatory implications and behavioural implications.

The IPCC paints a grim picture of the future in its fourth climate report, predicting that it was 'very likely that hot extremes, heat waves and heavy precipitation events will continue to become more frequent', putting millions of people at greater risk of starvation and water shortages. Some of the physical or environmental ramifications of climate change are already being felt, with many countries experiencing hotter summers and milder winters, an increasing number of droughts in Australia and Spain, and higher frequency of hurricanes off the Gulf of Mexico.

According to the Mr Raslan, the environmental impact of climate change would affect a diverse range of industries. The obvious one is the energy sector: 'Warmer winters and hotter summers in the US, for example, are likely to lead to an increase in demand for natural gas, but we expect climate change issues to have a net positive affect on natural gas prices because of the increased use of 'clean' natural gas for electricity generation by utilities,' he said.

Investment opportunities may also be found among water suppliers in countries experiencing increased frequency of water shortages, as well as insurance companies operating in populous but hurricane-prone states in the US where bigger companies have reduced their exposure.

On the negative side, a recent report by Sprott Asset Management observed climatic changes induced by global warming could have a dramatic impact on agricultural productivity, citing the example of Argentina, where flooding in some areas and droughts in others have had a detrimental impact on beef, corn and soya bean exports.

Mr Raslan said the regulatory implications of climate change could be subdivided into three areas: emissions controls in the power generation, car emissions regulation, and energy efficiency standards in building construction - and several companies stood to benefit in each area.

'Nuclear power generators have been considered environmentally unfriendly in the past, but in a carbon-regulated world we expect nuclear power plants and natural gas fired plants to be well positioned relative to dirty coal-fired plants. We therefore see opportunities among power producers with such 'clean' power generation assets, in addition to the engineering and construction companies involved in building their power plants,' Mr Raslan said.

Firms in alternative energy sources, such as wind and solar power, as well biofuels, were also worth considering, Mr Raslan said, although observers had noted that firms which were expanding their ethanol production to exploit demand for cleaner fuel had been doing so unethically by clearing rainforests to make way for crops.

Mr Raslan said similar opportunities existed in the car industry where firms that had developed technologies to enhance fuel efficiency stood to benefit from government control of car emissions. These green technologies include lightweight construction materials, hybrid petrol-electric engines and engines running on cleaner fuel sources.

In terms of behavioural implications of climate change, Mr Raslan said even when not faced with imminent regulation, a growing number of corporations were pursuing strategies to reduce the greenhouse gas emissions from their operations. This meant good long-term prospects for multinational companies involved in 'climate consultancy' and services to facilitate the reduction of greenhouse gas emissions, he said.

The Citigroup report identified 74 listed companies that would potentially benefit from the consequences of climate change, and Mr Raslan believed there was still room for upside in the shares of highlighted companies based on their present valuations.

He said Citigroup Private Bank last month held small group seminars on climate change related investment strategies, which had been well received by its wealthy clients.

He said the bank's high-net-worth clients were participating in the climate change investment story through structured products with underlying assets consisting of baskets of shares in firms that were likely to benefit as the world heated up.