Sunday, August 16, 2009

Green Bubble?

A bubble is defined as "the phenomenon of rising share prices amid a mood of general euphoria, leading to a 'bursting' and a reversal of the prices and the mood."

According to the Conservative publication The New Republic, the Green bubble has already burst. In an article subtitled "why environmentalism keeps imploding" they appear to blame educated liberals, Fortune 500 companies, and even arch conservative Newt Gingrich for having the audacity to demand action on global warming.

By way of supporting their claim, they cite a Pew Research Center poll which found that between January 2008 and January 2009, the percentage of Americans who indicated that the environment was a 'top priority' dropped from 56 percent to 41 percent. And they add somewhat derisively, "surveys have long showed that enthusiasm for all things green is greatest among well-educated liberals."

Contrary to the assertions of this article, this is a temporary retrenchment as a consequence of the economic pressures of the recession.

It is important to understand that Conservative's have a long and less than distinguished tradition of resisting environmental initiatives. Ronald Reagan tore down Carter's solar panels from the White House and blamed the trees for pollution and George W. Bush's administration resisted the very notion of environmental responsibility.

These New Republic authors snidely comment about "the exaggeration of insignificant gestures like recycling and buying new lightbulbs (sic)." They also denigrate Green as "positional consumption," (meaning consumption that distinguishes one as elite). They further dismiss Green initiatives as little more than "a way to reduce guilt." They even go so far as to ridicule notions of community and interconnectedness. (What is so outlandish about believing that our common interest in halting global warming should bring us together and increase international cooperation?)

The authors of this article get at least one thing right, Green has moved beyond politics and is now a cultural phenomenon.

The idea of a Green bubble is not new, in July of 2008, A Market Watch article warned us to Beware of a 'Green' Bubble. It indicated that, "Investors have driven up the prices of environmentally friendly stocks, perhaps to unrealistic levels."

"It was just over [two years] ago where we would have somebody arguing with us over whether or not the market would ever favor green investing," said Jack Robinson. "Now you've got to worry about valuation and some of the speculative bubbles that are building," Robinson said.

Although they conceded that Green investing was providing very attractive returns, they also added "burning returns across the sector are flashing a yellow light to green investors."

Portfolio 21 manager Tony Turisch stated that firms that take steps towards sustainability offer an an advantage that can in turn be sold to its customers, Tursich said. "Companies that are taking these steps are ultimately going to have a competitive advantage and a lower cost structure."

Earlier this year Jay Yarow wrote an article entitled "The Green Bubble That Won't Take Shape" in which he refutes concerns that the Obama administration's stimulus plan will lead to a Green bubble.

Yarow quotes Joseph Stiglitz and Nicholas Stern who wrote, "The investments necessary to convert our society to a low-carbon economy – investments that can change the way we live and work – would drive growth over the next two or three decades. They would ensure that growth, with accompanying improvements in standards of living, was sustainable. The path that we have been on is not."

He adds a comment from Merrill Lynch cleantech analyst Steven Milunovich who said, the "sixth revolution will be the Age of Cleantech and Biotech," in an editorial for Greentech Media. (Previous revolutions: Industrial Revolution, Age of Steam and Railways, Age of Steel, Electricity, and Heavy Engineering, Age of Oil, Automobiles, and Mass Production, Age of Information and Telecommunications).

Yarrow's main point is that slow credit markets will ensure that money flows gradually into the Green Market. "And, while the billions from the government will act as a gap for a few years, the one thing we can be sure of is that it cash won't come swiftly no matter the rhetoric....the capital influx into green projects is likely to be more orderly and less so a bubble-inducing grab bag."

In an article entitled The Myth of the Green Bubble, Will Sarni CEO of a sustainability consulting firm states that "companies that truly understand the business case for sustainability are not backing off from their green goals, no matter what the stock ticker says." They are "using sustainability to drive revenue and reduce operating costs."

According to Sarni, successful companies have recognized the value of minimizing their carbon footprint and reducing their use of resources. These companies willl thrive in a global economy where resources are constrained.

However, "If sustainability is window dressing then this is a good time to jettison your green marketing and communications efforts and hunker down." But he goes on to say, "the world will look very different in the next few years. Carbon will be regulated and those companies that see this as an opportunity to identify operational efficiencies and create new, innovative products will likely do very well.

"[T]heir will be a slowdown in work for those companies that never really understood the business case and the value to their business with respect to reduced operating costs and increased revenue. Sustainability has moved from the right thing to do to the right business thing to do."

Remember, we have yet to feel the impact of the stimulus money promised in the Emergency Economic Recovery Act of 2008. There are many companies poised to take advantage of these incentives.

Green practices are a thrifty way to make ends meet in a difficult economy. But more importantly Green offers a sustainable way forward in an increasingly competitive economy. Investment in green will increase efficiency and yield both short term and long term dividends.

Despite the recession Green investing is already producing very impressive returns. As of July 9 Spectra Green has provided one year returns of 32%, and Portfolio 21 has provided returns of 31% over the same time frame. As was made clear in the previous post the Green Market's sustainable stock has also outperformed the market.

There is no Green bubble and the strong performance of sustainable stock is not a "flashing yellow light" as some pundits have claimed. Sustainable investing has a Green light and only the politically motivated or the uninformed can claim otherwise.


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1 comment:

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