By Andy Mannle | Tuesday, 27 May 2008
With an avalanche of interest in clean energy and businesses of all sizes exploring ways to go green, sustainability represents “a massive opportunity for investment right now,” says Brett Conrad, managing partner of Longboard Capital Advisors.
At the recent GreenWest Expo, Conrad and other financial experts held a panel on “Investing in Sustainability,” offering advice on the current state of the market, and tips for getting involved.
Corporate Responsibility Goes Green
Panel moderator Greg Wendt, of Enright Premier Wealth Advisors, said that the idea of responsible investing used to mean businesses, funds or portfolios that abstained from harmful practices like selling weapons, tobacco, or alcohol. It meant withdrawing from companies that supported dictatorships or the apartheid government of South Africa.
The meaning has since broadened with the realization that an economy based solely on growth is unsustainable. Responsible investing now means avoiding companies that cause pollution, produce toxic materials, contribute to deforestation, or waste water.
But as eco-visionaries Paul Hawken, William McDonough and others have pointed out, doing less bad is not the same as doing good. The real excitement in sustainable investing, says Andy Funk, of Funk Ventures, is in using financial tools to create positive change.
“America inspires people to make money, to do the impossible,” he says, which is both good and bad. The new challenge is in taking agendas traditionally adopted by non-profits, and “combining them with businesses targeted to social and environmental good.”
The Fast Growth of Green
To give a sense of the magnitude of this movement, Wendt points out that the US stock market totals nearly twenty trillion dollars, of which nearly $3 trillion is involved in some form of green investing. A third of that, or roughly $700 billion dollars in capital, is held by traditional funds made green by shareholders who demand they screen out socially and environmentally harmful investments. On the other end of the spectrum is nearly $300 billion a year of venture capital being invested in a wide range of green investments.
On May 1, one firm alone, Silicon Valley venture capitalists Kleiner Perkins Caulfield and Byers (KPCB) launched two green funds totaling well over a billion dollars. The first fund, KPCB XIII, will invest $700 million in green tech, IT, and life science ventures. The second is a Green Growth fund investing $500 million to “help speed mass market adoption of solutions to the world’s climate crisis,” says a company press release.
“We urgently need to advance our greentech industry at a speed and scale commensurate with the challenges we face,” said KPCB partner John Doerr. “We believe green technologies are both the key to solving our energy crisis and a tremendous business opportunity.”
“The world has embarked on the next industrial revolution,” KPCB partner John Denniston commented. “The growing sense of global urgency over our twin energy crises - climate change and energy security – is now driving businesses to become green, consumers to demand green, and policymakers to drive policies to accelerate the market adoption of green products.”
What’s Green and What Isn’t?
The boom in green business is so big, affecting so many sectors, it’s becoming difficult to separate it from business in general, and the definition of what constitutes a “green business” is rapidly expanding as a result. Traditional businesses from manufacturing to computing are developing “active strategies to be resilient in resource and energy scarce markets,” and going green in the process, says Greg Wendt.
Additionally, says Brett Carleton, “Ethical practices are invading all business, so it’s harder to separate true green business.”
Andy Funk points out that establishing verifiable metrics for your shareholders and customers is “getting more and more important” for all businesses. “If you can quantify the impact you’re making, then you can tell if you’re a green business or not.”, says Funk.
GreenWest keynote speaker Gil Friend speaks of ‘business metabolics’, and notes that being green is quickly moving from “a nice thing to do, to a central part of doing business.”
In the next five years, efficiency mandates, pollution and waste restrictions, and consumer demand for responsible business will all drive the green trend further.
How to Get Involved
The good news is you don’t have to be a business owner, or a venture capitalist to be a sustainable investor. There are many ways to put your money in the new green economy, from buying sustainable products, to taking advantage of the “green power” option provided by many utilities. At places like the New Resource Bank, even the money in your checking account can be green.
But if you do want to invest, our panelists have some advice for you.
Just because the green space is booming doesn’t mean that you can throw your money at anything and come out ahead. Greg Wendt says he speaks at length with clients about what their goals and interests are before suggesting investments. Whether you want to invest in one company, one industry, or a whole slew of industries depends on how much risk you want to take, and how much time you have.
In many ways, sustainable investing is no different from other forms of investing. “The money is only half the equation,” says Wendt. Sound business strategy, a well-defined market, and proper management are all equally important to the success of any investment.
Andy Funk says his company gets 150 business plans a month, but only invests in four or five a year. They spend two to four weeks seeing if they like an idea, several more weeks exploring the details, and up to several months doing due diligence before they invest in a company.
Whatever your strategy, says Brett Conrad, “Do something.”
“If you don’t focus on this shortly, you’re going to miss out. This is as big as the railroads, the internet, or the electrification of the US. It’s happening everywhere.”
“Have a personal experience. Be willing to learn. Get to know the companies you’re investing in. Take some chances every day that scare you a bit. Having fun and being a little scared go hand in hand.”
But if you want some help, you could try starting here:
Social Investment Forum - Advancing socially and environmentally responsible investing.
Socialfunds.com - The largest personal finance site devoted to socially responsible investing.
Portfolio21 - Portfolio 21 companies seek to prosper in the 21st Century by recognizing environmental sustainability as a fundamental human challenge and a tremendous business opportunity.
Ceres - Investors and Environmentalists for Sustainable Prosperity. Ceres established the Investor Network on Climate Risk, a $5 trillion network of investors that promotes better understanding of the financial risks and opportunities posed by climate change.
Image: © Bram Janssens | Dreamstime.com