The Green Column #30

Businesses and Portfolio Investments: How Green Is It?

July 19, 2010—The financial and business environment continues to be volatile, uncertain, and “soft.” However, two recent gatherings in Omaha, of global and national action-minded individuals from energy and community sustainability experiences provided Nebraskans new encouragement, and new visions, for our regional and statewide future.

The White House-sponsored Midwest Energy Innovations Summit and the 2010 Meeting of the Minds, sponsored by the Joslyn Institute for Sustainable Communities and others, made evident the new business and finance opportunities that the future holds, as well as the importance of Nebraska’s natural and human resources, if we wish to be major players in the new post-carbon economy. The new conservation-based, post-carbon economy—we were told by the many experts in these conferences during June 16–18—will be dramatically different than the post-industrial economy of the immediate past and present.

Two recent articles from business and investment global authorities serve to corroborate these changes of opportunity before us. The first, repeated here verbatim, is from Calvert Funds, a large mutual fund and investment management firm. Their observations are on green opportunities in portfolio investments, and the second source focuses on the drivers for sustainability in business practices as researched by the global business consulting company, Accenture.

First, the perspective of the Calvert organization:

Going Green!

Automobiles, airplanes, baby boomers and the internet—what does each of these things have in common? They all qualify as catalysts for what you might call a megatrend: a trend that revolutionizes our lives and offers long-term opportunities for investors.

Take the Baby Boom generation, for example. As that generation got married and had families post WWII, there was a housing market boom. As the kids grew up, there was a boom in family-oriented entertainment. And, now, as the boomer get older, sectors that involve health care, retirement services and leisure pursuits are experiencing growth.

Similar to the boomer generation, the world’s increasing focus on the environment and green living represents an emerging megatrend that is likely to drive investment opportunities for years to come. In fact, many people feel green may evolve into an accepted standard against which portfolio investments will be measured in coming years. That emerging standard is: How green is it?

The Green Engine

There are four underlying factors that should help drive the long-lasting viability of green investing well into the future. The first of these drivers has to do with the emergence of greener economies worldwide. As standards of living rise globally, the accelerating growth within emerging economies is steadily intensifying the competition for the earth’s limited resources. And while demand is burgeoning, global supply faces severe constraints. From production to refining, the widely accepted opinion is that fossil fuel prices will increase over time. In a long-term environment of rising and volatile energy prices, astute investors should be looking for attractive companies engaged in providing renewable alternatives or creating efficiencies in resource usage.

A changing policy perspective at home and abroad is the second driver behind the green theme. While there is still some debate about the exact causes of climate change, there are very few people who do not acknowledge that the earth is warming. Given the likelihood of regulation in support of a clean-energy economy and green technology, certain industries, such as infrastructure, energy, technology, transportation, and manufacturing should see a boost.

Driver number three is the emergence of greener businesses. The way a company is positioned against a variety of environmental factors can impact its long-term financial performance and viability. Smart management teams have known for some time that adopting green corporate practices can ease bottom-line pressures and lead to product innovations. Professional money managers should be seeking to identify those companies that are leading on both the cost reduction and innovation and product development sides of the green equation.

The final driver is the increasing tendency for individuals to lead greener lives. From using more energy-efficient light bulbs to making major purchase decisions like appliances and cars, environmentally-sensitive choices are becoming a way of life for many people. And as green becomes the favored option in the home, it’s likely to be sought out in more investment portfolios as well. Just consider that in 2008 The National Marketing Institute projected that sales of green products would be almost double in 2010 (from $209 billion to $400 billion).

However one sees opportunity—changing consumer attitudes and behavior, higher long-term energy cost efficiencies, risk management, environmental improvement, or an attempt to satisfy the demand for scarce resources—this convergence of trends is expected to create a wealth of opportunity for investors savvy enough to recognize them.

Going green, it would seem, is a sound investment strategy worthy of further investigation. The message from Accenture is that they have studied 275 Fortune 1000 companies for their profile of adoption and implementation of principles of sustainability. From this research they have ascertained that the companies with the highest profitability, growth rates, vision of the future, and longevity demonstrate the following:

  • They craft a powerful and actionable strategy for sustainability
  • They implement an integrated and accelerated approach to executing that strategy, and
  • They build capabilities to ensure that a long-term focus and commitment to sustainability permeates the entire organization

But, the one paramount and consistent resource for the business with sustainability principles is LEADERSHIP. How, from where, and when will Nebraska’s sustainability leaders emerge?

Assistance with this article from Tyler Mainquist is deeply appreciated.

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