GLOBAL warming is expected to have a big impact on the economy and stock market in future years, so fund managers are searching out companies that will benefit from a shift to cleaner technologies, writes David Budworth.

Steve Russell of Ruffer, a wealth manager, said: “The financial markets are taking the issue extremely seriously. Significant amounts of work are being done in the City to find companies that can profit.”

Politicians and scientists are still arguing about the long-term effects, but the impact of government regulation and consumer pressure is already being felt on the stock market.

In Britain, government tax breaks are encouraging car drivers to switch to less polluting vehicles and fuel.

Generous subsidies are also being offered to companies that are involved in renewable energy such as wind farms. And globally, governments are searching for ways to cut greenhouse-gas emissions.

Which firms are best to back?

New laws are expected to boost demand for the catalytic converters and diesel-particle filters made by the FTSE 100 company Johnson Matthey.

European trucks and buses will need to have catalysts fitted to reduce emissions from October next year.

America is set to follow in 2007, while diesel cars, which are becoming more popular in Britain, will be required to have a filter to reduce soot emissions by 2010.

Vehicles that run on cleaner fuels are also gaining in popularity. The Toyota Prius, powered by a petrol engine and an electric battery, is driven by Hollywood A-listers such as Leonardo DiCaprio and Penelope Cruz. Azure Dynamics, listed on the Alternative Investment Market (AIM), makes software and batteries for hybrid electric vehicles.

Ocean Power Technologies is another way to tap into the move to renewable energy. It makes offshore, wave-powered electricity generators, and recently signed a deal to build a wave-power station off the coast of France.

And don’t forget carbon- emissions trading. Under the trading scheme, manufacturing firms are given quotas for carbon-dioxide emissions.

Firms that produce less pollution and come in under their quota can sell their allocation to heavy polluters who would otherwise be fined. That way, both companies benefit.

Trading Emissions, which trades in carbon credits, recently listed on AIM.

What about funds?

Only a handful of mainstream funds focus on climate change, including Merrill Lynch New Energy Technology investment trust.

The unit trusts Jupiter Ecology, Jupiter Environmental Opportunities and Scottish Widows Environmental Investor also focus on environmentally friendly firms.

So do some venture-capital trusts (VCTs), which invest in small, unquoted firms or shares listed on AIM or the Ofex market, and offer generous tax breaks for the high risks involved.

Ventus VCT, which launched earlier this year, invests in wind farms. Although it is now closed to new investors, it is planning to offer another round of shares in the same or a similar fund later this year.