The Problem with Green Stocks (PPB #8)
Ambrose Desmond runs sustainablog’s subdomain on green investing.
While conscious investing can be an excellent way to support the emerging green economy, issues with the way the sector is structured can make matters complicated. One complicating factor for people looking to invest in green stocks is that many green companies are wholly owned subsidiaries of not-so-green companies. This is certainly a problem for conscious consumers, yet consumers have the option of choosing to support small privately owned businesses and co-ops. Investors looking for green stocks have a more difficult time since they are confined to the world of publicly traded companies.
Tom’s of Maine* is an excellent example of this problem. It is a company with a great product, highly progressive business practices, and a wonderful community involvement program. They donate 10% of their pre-tax profits to progressive organizations and encourage their employees to use paid time to volunteer at nonprofits. While you might be interested in Tom’s of Maine as a possible green stock, you would find that it was purchased by Colgate-Palmolive (CL) in 2006 for $100 million. A quick search on The Big Money’s socially responsible investment screener shows Colgate receiving a 69/100 rating for environmental impact (including being involved in creating a Superfund site in NJ) and an even worse 42/100 for labor and human rights. Not exactly the kind of company that a green investor is excited about supporting.
Moving to the green energy sector, we see more of the same. It is generally accepted that green energy will grow faster than the market over the next 20 years. For example, if we were to get only 1% of our electricity from solar, the industry would have to more than triple in size. However, even with all of that potential growth, it’s not easy to pick a good green energy stock. The sector is highly volatile and for every small company that will take off, many more will crash. Therefore, one of the most popular picks for investors who want to profit from our move to green energy is the infamous GE (cue ominous bad-guy music). From a green perspective, GE is bad (52/100 on The Big Money and over one million pounds of PCBs dumped into our water). From a labor and human rights perspective, they are downright horrible (15/100). They manufacture parts for LANDMINES!! Yet at the same time, they are moving aggressively into green energy and many people believe they will be one of the main companies to profit from our move from oil to renewables.
So, what green stocks work for a conscious investor?
What’s an investor to do? The two main options for green stocks are to stick with the smaller green companies or to buy into the big ones and become a shareholder activist. However, there are some real issues with both options. Looking for good investments in small green companies can take exhaustive research. Companies such as Seventh Generation* and Stott Pilates (Merrithew Corp) are privately owned, and many publicly traded companies like Tofutti* (TOF) are thinly traded and not particularly well priced. Yet there are some good buys out there. Companies such as HQ Maritime Sustainable Industries (HQS) and GT Solar (SOLR) are both green and currently undervalued.
If you are interested in shareholder activism, you should check The Interfaith Center on Corporate Responsibility to make sure that there is an active resolution being organized for the company you want to buy. Both GE and Colgate have several.
While investing in green stocks is not easy, with some research and a good investment adviser, it can be both financially and personally rewarding.
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*Links to sustainablog’s Green Choices store