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It might make you feel better, but will it make you richer?
WITH APOLOGIES to Kevin Bacon, we present the Six Degrees of Green Investing: 1) Crisis? What crisis? 2) I’m not convinced about global warming, but I am concerned about energy independence. 3) Why can’t they make a car that runs on grape juice? 4) Hell, I’d even invest in that company. 5) Actually, with some design software and a few engineering students from SDSU, I could build that company. 6) Guess what, I’ve invented the Grapemobile.
Robert Wilder didn’t invent the Grapemobile, but in 2004 he did create the WilderHill Index, a fund that grows on the performance of the three dozen-plus stocks it tracks, similar to an index fund of the Standard & Poors 500. Unlike the S&P, however, Wilder’s index is filled with clean-energy stocks, such as First Solar and Sunpower. In three years, his fund has increased in value by about 30 percent a year, indicative of the heat that clean energy is generating among investors.
“The advantage with an index is that you spread the risk of being too much in any one stock,” Wilder says. Just as the improved efficiency of solar panels increases investor interest in clean energy, Wilder’s fund also moves on industry news.
“Global warming [is] just one aspect of the clean-energy movement,” he says. “Other things, like the price of oil, are probably more important. And so when oil hits $80 a barrel, that makes prospects for clean energy much brighter.”
San Diegans have their reduced carbon footprints all over the green investment landscape, tracking investments, like Wilder, or tracking greenhouse gases, like Carlsbad’s Enviance Inc. They are part of a wave of entrepreneurs poised to take advantage of an expected quadrupling in revenue of clean-energy firms (from $55.4 billion in 2006 to more than $226.5 billion by 2016), according to a report by the research firm Clean Edge.
Like most investors in clean energy, Wilder is looking to technology to help align his consumption with his beliefs. His 1-acre spread in Olivenhain has solar panels on the roof, and the garage awaits the $100,000 Tesla electric sports car he’s ordered. He tore out a lawn and replaced it with fruit trees to conserve water.
“In six years, the solar panels will have paid for themselves, and after that my electricity is free,” he says. And with solar to help power the Tesla, “I won’t have to rely on Middle Eastern countries that don’t like the U.S. for my fuel.”
After describing how he plans to use compost in his chicken coop, he chuckles. “I guess in some ways it looks a little hippie-ish,” he says, “but to me everything we do is not a hippie thing, it’s a better thing.”
A better way to measure greenhouse gas emissions is what’s driving Carlsbad’s Enviance to 50 percent gains in revenue in each of the past four years. Enviance’s software integrates with the computers of energy titans like American Electric Power and Chevron to provide reliable, at-the-source measurements of CO2 (carbon dioxide) and other greenhouse gases.
“Executives can see at a moment’s notice what their greenhouse gas footprint looks like and how successful they are at emission removal,” says Larry Goldenhersh, CEO of Enviance. “Companies that produce an auditable greenhouse gas foot print will lead the discussion on how we solve the greenhouse gas crisis.”
Goldenhersh points to three events earlier this year that seemed to change the discussion about clean energy almost overnight. First, the United Nations issued its intergovernmental report of 2,000 scientists who believe greenhouse gases are causing global warming. The second event was the $44 billion buyout of Texas utility TXU by Kohlberg, Kravis, Roberts, the famed New York private-equity firm.
“The buyout was predicated on a deal to reduce [TXU’s] coal-fired power plants from 11 to three, a massive reduction in coal-fired generation capability,” Goldenhersh explains. “So you have the ultimate financial entity announcing that their intent is to replace coal with wind and solar. They wouldn’t make a deal like that unless they think they can make money on clean energy.”
Shortly after the TXU buyout, the U.S. Supreme Court decided a case that makes it easier for states to sue the federal government to include regulation of greenhouse gases under the Clean Air Act.
Goldenhersh sees Enviance prospering in a new “carbon-constrained world,” in which Congress will either tax greenhouse emissions or come up with a “cap and trade” solution, in which emissions over the cap are taxed but may also be purchased from some other business that has not used its carbon allocation. In fact, Enviance is planning a “capital-raising event” in the next 18 months or so, he says. “We’re betting Congress will put carbon on the balance sheet in the very near term.”
WHETHER CONGRESS actually does act is just one of many factors that increase the risk when investing in clean energy. Unproven technology, the growing pains of new companies in an emerging market, the fluctuation of the initial public offering market and the challenge of keeping informed about technology advances in a volatile market are all hurdles for inexperienced investors.
Experts say to avoid having a portfolio composed solely of green start-ups, investors should diversify by also investing in established firms with a green tinge.
“I look at British Petroleum,” says Jan Schalkwijk, founder of JPS Global Investments. “They’re an oil company, but they’re also the largest provider of solar energy. I wouldn’t shun a company because they’re in a certain industry. And diversification is important, especially in ‘clean tech’ where the companies tend to be younger.”
Bud Leedom, Californiastocks.com publisher, says basic research can help unearth green winners. “You have to see what needs exist and what the applications address, and then do an analysis of the company’s finances,” he says. “For example, Sunpower has been very successful in signing contracts with the Solar Park project in Europe. There are green companies with sizable contracts.”
Justin Martello, a financial adviser with the Blue Summit Financial Group in San Diego, says green investing is the latest evolution of the “ESG” criteria——environmental, social and governance——that has become more widespread over the past two decades.
“Money managers integrate ESG criteria into investment decisions, so we only invest in companies that have positive characteristics,” says Martello. ESG criteria can range from how a company responds to climate change to how much the CEO is paid relative to the salary of the average employee. Martello says established companies that have passed the ESG test include Target, Johnson & Johnson and Whole Foods.
In evaluating green investments, risk tolerance should be a primary concern, Martello says, but investors needn’t sacrifice performance to invest in companies that do good works. He points to the Domini 400 Social Index, a “socially responsible” index fund, which has out per formed the Standard & Poors 500 since the Domini 400 was founded, according to the Web site socialfunds.com.
Another tip is to join an investment club such as San Diego’s own Eco Investors (ecoinvestmentclub.com). Yeves Perez founded the club in June to find other ecology-minded entrepreneurs.
“I was thinking I’d get 10 members, but I had 650 subscribers in the first two weeks,” he says. “Green is exploding, with six sustainable investment funds launched in last few months.”
The Grapemobile awaits.
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