Headline: Can adding Green to your portfolio put green in your pocket?
Date: 3/31/2021
Body: I was reading a wonderful article on green investing in the latest issue of Kiplinger’s Personal Finance (04/2021) entitled “Profit from Planet-Friendly Companies.” It stimulated me to think of the question: is it possible that my investments could give me green, and my investments can be green too? Given the precarious nature of our environmental health right now, I thought that this was a timely topic.
For many people, working with the environment doesn’t mean completely changing the way they live. Instead, it means choosing more environmentally sustainable ways to do the things that they already do. Like combining trips to minimize miles on our cars, green investing is a powerful way for you to drive change towards a more sustainable society. Under the rubric of socially responsible investing, green investing is the strategy of investing in environmentally conscious companies that make an effort to conserve natural resources either directly or in their business practices. While this type of investment offers the benefit of helping a cause you believe in, it’s still important to consider all the risks and rewards associated with investing your money.
What Is Green Investing?
Green investing is one example of socially responsible investing. There are 2 kinds of green investing; There are “pure-play” options and other companies who are trying to be a bit more green in what they do. Pure-play options include companies whose mission is to research and develop new technologies or processes that directly benefit the environment. Examples include companies that make wind turbine blades or solar panels. Many people also broaden green investing to include companies whose primary goal and revenue stream is not environmentally motivated but engage in resource-efficient practices and institute eco-friendly policies. This is tricky because, a company in a very pollution-causing industry can be considered “green” if it tries to engage in policies that are less polluting than their competitors. For instance, a power plant can be considered “green” if it has a very effective filtering device.
So, is it possible that a business would pay lip-service to environmentalism, and still be inefficient?
What Is Greenwashing?
Some businesses have engaged in policies and practices to look like they are trying to be good for the environment. This sort of image-engineering is often called “greenwashing.” There are some things to be aware of when reading a company’s documents. Be skeptical when you see vague marketing campaigns that make non-specific claims or emphasize one insignificant green initiative. Here are some specific things to look out for:
- Unclear ecological terms in marketing materials like “eco-friendly” and “environmentally safe.”
- Conservation-based imagery on packages. Specific images are often carefully selected for their unnoticed impact on your perception.
- Abject lies are sometimes used. Companies will fabricate labels and awards that make them seem greener, or directly lie about their product’s impact on the environment. If the proof to any claim seems hard to find, that may be because it’s not true at all.
But, there are some kinds of investing that you can do in companies that are truly trying to be green. Here are a few possibilities:
Hydropower
Water has been the de facto resource for renewable energy for centuries. Along rivers, mills were set up so that the rushing waters could turn the heavy millstones that would grind grain into flour for bread. More recently, huge dams have been put up to both provide water selectively and generate electrical power. In point of fact, 98% of the renewable energy in the US is from hydrological power.
There are few pure-play stocks in the hydro business. However, there are three energy producers with notable amounts of hydropower in their portfolios. PG&E (PCG) has one of the largest hydro operations and seems to put its mouth where its money is as it offers generous credits and rebates for consumers who purchase energy efficient appliances.. Idacorp (IDA) has 17 hydro projects. They also have a goal to only use sustainable projects by 2045, so they seem to be quite attracted to the sustainable nature of power generation. Meanwhile, Brookfield Renewable Partners (BEP) derives 66% of its portfolio from hydropower and boasts 5,300 projects worldwide.
Wind Power
Harnessing wind power provides a clean and renewable energy source that’s growing in popularity worldwide. (I remember that in the early 1980s, my father did some work on “windmill hill” near San Francisco.) More recently, the Bureau of Labor Statistics estimated a 108 percent growth rate of wind turbine technicians between 2014 and 2024. Businesses that allow you to invest in wind power include both wind farms and companies that design and manufacture the turbines themselves. More recently, many companies have been trying to get licenses to open “wind farms” offshore.
If this renewable interests you, look for wind farms that sell wind-generated energy, or consider companies that manufacture wind turbines. The companies holding the largest market share in the Wind Turbine Manufacturing in the US industry include General Electric Company, Vestas Wind Systems A/S and Siemens Gamesa Renewable Energy, and for those who would like to invest internationally, China seems to have a large variety of companies that make the blades for these turbines. For those who wish to invest in the companies actually creating electrical power from wind, GE, TPIC and AMSC seem to be some of the more exciting companies.
Solar Power
Solar power currently accounts for 1.6 percent of all the energy generated in the United States. (Out in the West, there are vast arrays of solar panels that can be used to harness a good amount of solar power.) I can only guess that these projects will increase in value and volume, as farmers come to realize benefits to both crops and livestock from the artificial shade and coolness from these installations. If you believe in the growth of this energy source, you may want to consider investing in companies that install, manufacture, or research the technology surrounding them. Here are a few stocks and funds in this field.
Energy from the sun powers homes, buildings and a variety of other items from lights to radios. If you think the sun is just getting hot in this industry, focus your attention on companies that make solar panels, which will benefit as homeowners and businesses increasingly adopt solar power. First Solar(FSLR) is a leading producer of solar modules and systems, and with net sales of $2.7 Billion in 2020, appears to be well-positioned for profit in the future. JinkoSolar Holding (JKS) also makes solar modules and claims to have delivered 52 gigawatts of production capacity, and this month, won a “high achiever” award from the Renewable Energy Testing Center. Sunpower(SPWR) makes solar modules and storage solutions for homes and businesses. Sunpower is interesting because they seem to have a very good financing arm, offering many options to prospective clients, and this seemed to help generate good results in Q4 of 2020.
Geothermal Power
Anybody who has been out to see Old Faithful geyser knows a little bit of the awesome power locked away in our Earth’s crust. Harnessing the power of the heat of the earth, geothermal power uses steam or heated water to drive generators. Though not the most common renewable energy source, the United States produces the most geothermal energy in the world — it accounts for .4 percent of electricity generated. Here are some geothermal companies:
Geothermal energy uses heat from the earth to produce clean energy. Ormat Technologies (ORA) builds, owns and operates geothermal plants, with operations in the U.S., Guatemala, Guadeloupe, Honduras, Indonesia and Kenya. Headquartered in Reno, NV, this company is quite small and seems to earn about 10% on its revenues, and this seems low. Calpine is another company in this space. Just this year, Calpine won an award from CDP for sustainability for its technology.
Are there other ways to invest in Green technology?
There are other ways to invest in green technology, outside of electrical generation.
Sustainable Food Production
This includes organic farms and sustainable fishing practices known as aquaculture. Green food production companies aim to combat overfishing of the ocean and promote responsible farming practices. These include forgoing harmful pesticides and opting for natural animal management techniques that avoid antibiotics. Beyond Meat produces a plant-based protein that some people were introduced to by purchase of a burger at Burger King. ADM is also interested in sustainable food productions and recently started a partnership with water.org with the goal of bringing potable water to 100,000 people. FMC is another player in this space. They garnered a 2020 award at the Crop Science Awards, and seem to be interested in using drones to help apply water and pesticides in a more targeted manner.
Waste and Recycling
People produce a huge amount of waste each year, and unless any preventative measures are taken, much of that ends up in landfills or our water sources. Green companies in waste and recycling aim to reuse materials like plastics and paper rather than discard them, plus promote responsible waste management. This one is an interesting one to me because there seems to be one large company; Waste Management. (In full disclosure, I own an immaterial amount of shares in this company.) But, it really is an intriguing company. In 2016 (per a company fact sheet) they were able to deliver electrical power to 2,000,000 households based upon waste. They also seem to have some really interesting ways for consumers to become involved in conservation.
Aquaculture
Sustainable fishing is another food-related investment opportunity that is generating attention as the plight of the world’s overfished oceans impacts the human food chain. Ingredion Inc. seems to be a major player in aquaculture. They seem to be a very new entrant to this cognate area, but, have several innovative programs. Interestingly, there is an ETF that focuses on aquaculture, and goes by the ticker symbol MOO. Interestingly, based on a fact sheet, most of their larger investments seem to be focused upon tractor manufacturers.
The Verdict
A great artist cannot use only one color. In a similar way, green investment might be an interesting portion of your portfolio, if used as a balancing item to other investments, it can be an area of robust growth for your investment account. As most of us are not specialists in either energy production or other conservation technologies, it would seem advisable to invest in an ETF or mutual fund with a variety of companies within the specialized investing space.
REFERENCES
https://www.investopedia.com/articles/stocks/07/green-industries.asp
https://www.investopedia.com/terms/g/green-investing.asp
https://fortune.com/2021/02/24/green-investing-can-pay-off-in-spades-ceo-daily/
https://www.economist.com/leaders/2020/06/20/green-investing-has-shortcomings
Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice. Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.