As Kermit the frog used to sing “it’s not that easy being green”. Clearly, that goes for companies too but an increasing number of them are making the effort just the same. For socially conscious investors, this has become an investment category in itself, providing the opportunity to both invest their money and support earth-friendly, responsible companies. So, the real question is whether these companies are a good investment or not?
It’s important to remember that “green” companies have just as much interest in making a profit as any other corporation. They simply choose to do it more responsibly. If they are profitable while operating consciously of their environmental impact, then their investors are all the more content. Although there are companies that comply with policies that move toward reducing their negative impression on the environment, the companies that are truly “green” are implementing sustainable practices systemically. Sustainability will soon become the rule rather than the exception. This classification of companies could very well be the next solid investment. They not only are reducing their consumption of the earth’s resources, they are reducing operating costs which has a direct effect on their bottom line.
“Green” can apply to companies with an earth-friendly focus or practice. Companies with an environmental focus are those like First Solar (FSLR), who design and manufacture photovoltaic (PV) solar power systems. They are directly involved in the production of eco-friendly alternative energy. Companies like these are pioneers of the future with big growth potential.
Companies whose products are either produced with natural ingredients or whose process is organic are companies like Chipotle (CMG), for instance. They emphasize sustainability in the food supply with a focus on family farmers, use organic produce wherever possible and purchase meat and dairy that has not been infused with hormones or antibiotics. By stressing organically grown produce, they have reduced over “140,000 pounds of chemical pesticides since 2005”. These pesticides seep into the soil and eventually reach our water supplies. They emphasize doing business with family farms over agribusiness because family farmers have a greater interest in rotating crops and being better stewards of the land itself. By focusing on local food vendors they also reduce the carbon footprint of transportation pollution and costs.
Beware of those who claim to be “green” in their public relations campaigns but when it comes down to close examination, they fail miserably to measure up to the hype and, in some cases, actually have a detrimental effect on the environment instead. There’s even a relatively new term for that deceptiveness – greenwashing.
Some people and organizations are pushing for standards in advertising that will make companies back up their “green” claims. In Britain, they are actually fined for misleading statements on this issue. The FTC (Federal Trade Commission) is reviewing when particular verbiage could be used such as “degradable” and “carbon offset”, for example. It is all part of the updating of guidelines in the “Green Guides” of the FTC. A few cases have been so egregious that the FTC has brought court action. But many slip through the cracks. So how do you find the real “green” companies to invest your money in?
Look for companies that strive to conserve natural resources, produce their product using “green” methods, produce or use clean energy, make products involved in “greening” our communities, or other practices that are conscious of the environment. This category of investing comes under the wider umbrella of socially conscious investing. The wonderful thing about the internet is that you can find any number of sites and articles on green stocks and funds as well as how they rate versus what they claim. Some interesting sites include www.sustainablebusiness.com for individual stocks and www.greenamerica.org for all sorts of green investing tips including a performance chart for “green” and socially responsible funds. There are many great resources on the internet so start searching.
If you are an investor who prefers mutual funds, there are some very specialized funds in this green category. Some “green” funds include some heavy hitters such as Chipotle (CMG), Green Mountain Coffee Roasters (GMCR), Whole Foods Market (WFM) and Ingersoll-Rand (IR). Others are far more specialized and concentrate on specific categories such as alternative energy, wind turbine, solar, water conservation and desalinization, bio-fuels, geothermal and hydroelectric companies. Ormat Technologies (ORA), for example, builds and operates geothermal power plants in over 13 countries at this time. You will find them in several “green” funds, particularly in these highly specialized ones involving alternative energy but it might not otherwise be a company you would ever hear of or find on your own.
One way to screen for funds that meet your criteria is to utilize a site like www.socialfunds.com, which is designed for socially responsible investors. It will not only filter for environmental “green” funds but also for funds that screen companies for other issues such as animal rights/testing and human rights. You can also screen for performance statistics, fund descriptions and comparing similar funds to one another to find one that fits your portfolio.
In 2005, a research firm called KLD introduced a new index of securities called Global Climate 100 Index comprised of companies focused solely on climate change solutions. The vast majority of their investment products are directly involved in alternative energy solutions. As Nico Willis, author of “Death of the American Investor” stated in his book, “understanding a company’s carbon footprint is a new addition to smart investing…as our country moves forward, the focus on energy consumption and carbon emissions will only continue to grow”. While many of these companies are smaller at this time, their path to growth is clear.
The green stocks are highly revered to the astute investor because of the fact that they are striving for “green” initiatives, thereby reducing the likelihood of lawsuits based on their business practices. Lawsuits affect the company in more ways than one. If a company winds up paying tens of millions of dollars because of practices that create a heavy carbon footprint and health hazards to the community, for instance, this ultimately goes against the valuation of the company. It simply makes financial sense for companies to adopt cleaner, greener practices.
You can find many lists by just searching the internet, specifically financial investing websites, for eco-friendly companies. There are an increasing number of these companies to find as preserving the earth goes from fad to simply good sense and actually profitable. As Kermit the frog, ends his lamenting song, he echoes the words of an increasing number of companies…and investors, “I am green…and I think it’s what I want to be.”
What does this mean for you? As with any investing decision, you should always assess your current financial situation, determine your risk tolerance and keep your allocations diversified. Although you will find that eco-friendly business is good business, it is important to understand more about the company and their products to really determine if it is a good investment. Being eco-friendly is an added benefit to the overall profile of a company, but it cannot be the only reason. If you do your homework, and the company is sound, it may very well be an investment to consider as part of your well-rounded portfolio.