CLIMATE change was high on the agenda at the G8 summit of world leaders last week — and it could become one of the most pressing issues for investors in the coming decades.

Tony Blair, the prime minister, has called climate change “probably the single most important long-term issue we face as a global community”. Now investors are starting to latch on to its importance.

Pascale Sagnier, head of socially responsible investment at Axa Fund Management in Paris, said: “About 20% of the global economy is affected by the risk of climate change. For many industries, including energy, transport and farming, climate change is more important than interest-rate or currency fluctuations.”

Average global temperatures are expected to go up by between 1.4C and 5.8C over the next century, according to the Intergovernmental Panel on Climate Change. There is a growing scientific consensus that one of the causes is the rise in greenhouse gases such as carbon dioxide.

One of the biggest effects of global warming could be a big increase in extreme weather, such as storms.

The Association of British Insurers has estimated that climate change could boost the annual cost of flooding in the UK by about 15 times from £1.5 billion to £22 billion by the 2080s, assuming carbon-dioxide emissions remain high. The European Commission has put the total future cost of global damage from climate change at €74 trillion (£51,000 billion) if nothing is done.

About 2m British homes are at risk from flooding, with up to 200,000 at a particularly high risk. These homes could be blacklisted by insurers and lose up to 80% of their value, according to the Royal Institute of Chartered Surveyors.

Veronica Fuller, 44, a local-government officer, fell victim to severe floods in Carlisle six months ago. The entire ground floor of her three-bedroom Victorian terrace was damaged, and she is still living in rented accommodation while it is repaired, courtesy of her building insurer, Halifax. She said: “It was extremely distressing. I am worried that my insurance will get more expensive. My contents insurer has already introduced a £2,500 excess for floods.”

Despite the doomsday scenarios, investors can benefit from climate change by backing winners and avoiding the losers.

Jennifer Hall Thornton of Climate Change Capital, an investment bank specialising in the field, said: “London is a leading centre for climate change, and we have identified about 70 firms that will benefit from government action. Investors who think climate change will become a big issue should consider backing these firms, although many of them are at present very small.”

One likely winner is the global alternative-energy industry, including solar and wind power. Investment in the sector is expected to grow from $20 billion (£11.5 billion) a year to $100 billion over the next 10 years, according to the International Energy Agency. Investment in renewable energy, including energy-efficiency measures and wind power, rose by 150% between 2000 and 2004.

The industry received a boost from the G8 last week when world leaders agreed to promote new, clean technologies to replace fossil fuels that produce carbon-dioxide emissions.

Investors who have backed alternative-energy companies have already enjoyed stellar gains. D1 Oils, which produces green fuel from the tropical jatropha tree, listed its shares on the London stock market at 160p last October, and they have more than doubled to 330p. Agcert, a Dublin-based firm that helps reduce greenhouse-gas emissions by converting methane from animal waste, listed on the London stock market at 140p and is now worth 215p.

The green-energy industry will not be the only beneficiary from climate change.

Farming in northern Europe could benefit from a longer growing season if summers continue to get warmer — as long as temperatures do not go up too much.

Dr Andrew Dlugolecki of Andlug Consulting, who has recently compiled a report on climate change for Allianz, the insurer, said: “A temperature increase of up to about two degrees Celsius might result in increased yields from farming in the European Union.

“However, any benefits in the north from an extended growing season may be cancelled by more pests, weeds and droughts.”

British Sugar, part of Associated British Foods, expects climate change to boost production of sugar beet, and plans to build Britain’s first factory producing bioethanol, a green fuel, from sugar beet.

Fund managers are also looking at construction companies. The government has pledged to allow 1.1m new homes in the southeast by 2016, many on flood plains — but some housebuilders are seeking to mitigate the risks.

Emma Howard Boyd, head of socially responsible investment at Jupiter, the fund manager, highlights Bellway, which is behind the Barking Riverside development in London. The landscape will be several metres higher than is natural, to reduce the risk of flooding.

It is just as important to avoid the losers from climate change. WestLB, the German investment bank, estimates that the value of companies globally could go down by between $192 billion and $916 billion if nothing is done about climate change. The Carbon Trust has estimated that if the oil and gas sector does nothing, its value could be destroyed by about £4 billion; the airline sector could lose £1.5 billion.

To help investors avoid the losers, the Carbon Disclosure Project, part of the Carbon Trust, publishes an annual climate leadership index. It picks 50 companies in each sector that are the best in their class.

Anglo American, BHP Billiton and Rio Tinto appear in the metals and mining sector; BP and Royal Dutch Shell are top in the oil sector; Aviva and Prudential are among the insurers doing most about climate change. You can find the full list at www.cdproject.net.

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