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When Is It "Green Enough": The Green Investor Dilemma

One of the underlying assumptions made by a lot of Green investors is that a green investment is a green investment. The asset promotes environmental issues, sustainability, and a cleaner world... right?


It's obviously much more gray than that, even for the oldest of the green funds. As a green investor, Rule #1: Prepare to make compromises. For the time being, there just aren't enough opportunities for purely green industry. That is, unless you're willing to sacrifice stability, return, and possible all your money. Pure green exists, but primarily in penny stock form - infinitesimally small companies producing a single product hoping theirs is the "product of the future," hoping for that buyout from one of the those big evil firms. Investing in these companies is a crapshoot, a true gamble for the gambling investor. These investments are not to be taken lightly, since bankruptcy is more likely than success.

So what do the rest of us do? We make compromises. I've said it before, but I'm as risk averse as they come. I like my returns stable, I don't like choppy markets, and I don't like unnecessary risk. So I stick to a lot of the basics: mutual funds, ETFs, commodities, and a smattering of individual positions for posterity. I'll take a short position to offset big losses, even if it stifles some of my upside. Since I've limited my asset pool, I've had to make compromises that every green investor is familiar with: most mutual funds and ETFs hold companies that aren't really green. Perhaps this is green conspiracy theory, but I prefer to think it's just a fact of life until the world changes.

For example, let's investigate the New Alternatives Fund (NALFX). This is one of my favorite funds, they've been investing in green energy since 1982. In 1982, no one invested in green energy. See my profile of New Alternatives right here. Even as one of my favorite funds, they have holdings that are far from pure green. Let's look at the list (as of 3/31/08):

Name of Stock % of Tot Brief Description
Gamesa Corporation Technologica 5.20% (Spain) Wind Turbine Manufacturer
Vestas Wind Systems 5.18% (Denmark) Wind Turbine Manufacturer
Acciona SA 5.08% (Spain) Construction; Wind, Small Hydro, & Solar Thermal
Abengoa SA 4.07% (Spain) Biomass (Ethanol Cellosic Project), Solar Projects, Aluminum Recycling
South Jersey Industries 3.98% Natural Gas Distribution/Cogeneration and Landfill Gas Projects
Schneider Electric SA 3.93% (France) Electric Energy Efficient Technology in Buildings and Industry
Q-Cells AG 3.77% (Germany) Second Largest Solar Cell Manufacturer
Johnson Controls, Inc. 3.52% Batteries (Lithium-ion) for Hybrids: Building Controls, Auto Parts
EDF Energies Nouvelles SA 3.49% (France) International Wind Power Project Developer
Ormat Technologies, Inc. 3.25% Geothermal Energy
Iberdrola Renovables SA 3.17% (Spain) International Renewable Energy Power Generation (Wind, Hydro & Solar)
Renewable Energy Corp. AS 3.17% (Norway) Produces Silicon for Solar Cells
Companhia de Saneamento (ADR) 2.93% (Brazil) Water Utility
Koninklijke Phillips Electronics N.V. 2.90% (Netherlands) Lighting (LED's, Compact Fluorescent) Electronics & Healthcare
Brookfield Asset Management Inc. 2.79% (Canada)Hydroelectric, Wind Power and Real Estate Assets
Solar Millenium, AG 2.73% (Germany) Solar Thermal Projects
Solarworld AG 2.71% (Germany) Solar Energy
Compagnie de Saint-Gobain 2.63% (France) Glass, Including Low-E Glass for Energy Efficiency
Nordex AG, Rostock-EUR 2.56% (Germany) Wind Turbine Manufacturer
Northwest Natural Gas 2.46% Natural Gas Distribution - with Energy & Conservation Programs
Orkla-Borregaard AS, Inc. 2.40% (Norway) Solar Silicon (Elkem Solar, REC Group) and other Diversified Holdings
Baldor Electric Co. 2.12% Energy Saving Electric Motors
Badger Meter, Inc. 1.63% Water (Automatic Meter Reading Technology) Meters
Owens Corning 1.54% Insulation
Whole Foods Market 1.25% Natural Foods
Canadian Hydro Developers, Inc. 1.20% (Canada) Hydroelectric and Wind Energy
Sharp Corp. Ltd. (ADR) 1.13% (Japan) Consumer Goods & Largest Solar Cell Manufacturer
TrustPower Ltd. 1.12% (New Zealand) Wind & Hydro in New Zealand
Hafslund ASA-A 0.93% (Norway) Hydropwer, District Heating/Renewable Energy Ventures
Kyocera Corp. (ADR) 0.79% (Japan) Semiconductors & #3 Solar Cell Manufacturer
Sims Group Ltd. 0.77% (Australia) Metal Recycling
Telvent GIT SA 0.72% (Spain) Information Technology (Including Solar Thermal Project)
Gorman Rupp Co. 0.62% Industrial Water Pumps for Fresh Water & for Sewage Treatment
Denso Corp. 0.61% (Japan) Auto Parts Manufacturer with interest in Fuel Efficiency and Hybrid Cars
Wacker Chemie AG 0.58% (Germany) Silicon Wafers for Solar Cells
Commercial Metals Co. 0.57% Recycled Steel
Applied Materials, Inc. 0.55% Semi Conductor Equipment Manufacturer with Solar Division
Stantec, Inc. 0.55% (Canada) Engineering, Architecture, Environmental Consulting
Itron 0.51% Automated Metering for Electricity, Water and Natural Gas
Electrificaciones Del Nort E ORD 0.43% (Spain) Wind & Solar Projects, Electric Transmission
Hyflux Ltd. 0.42% (Singapore) Water Purification in China & S.E. Asia
WFI Industries Ltd. 0.41% (Canada/US) Small Geothermal Installations (Homes & Businesses)
MEMC Electronic 0.40% Silicon Wafers for Solar Cells
Solon, AG Fuer Solartechnick 0.40% (Germany) Solar Energy
Pennon Group PLC 0.37% (United Kingdom) Water Utility
Befesa Medio Ambiente SA-EUR 0.35% (Spain) Water Projects (Desalination), Metal Recycling
Hansen Transmissions 0.07% (Belgium) Transmissions & Gearboxes for Wind Turbines
Ocean Power Technologies, Inc. 0.07% (United Kingdom) Wave Energy Device
FuelCell Energy, Inc. 0.06% Molten Carbonate & Solid Oxide Fuel Cells (Primarily Commercial)
Renewable Energy Holdings PLC 0.05% (United Kingdom) Wind Projects and Ocean Energy Technology
Eaga PLC ORD 0.03% (United Kingdom) Residential Energy conservation (Warm Homes Program)

An impressive list of assets in all spheres of green (at least at face value). I'm going to look at the bolded assets a little deeper as an example of the "green compromise."

South Jersey Industries (SJI): ranks as one of the better energy (not just green) companies in the country, SJI is provides gas, electric, HVAC, and other energy needs for industrial, commercial, and residential customers. All in all, not a bad company - but you can't escape natural gas as part of the process. KLD named them in their Global Climate Change 100, which is a good thing. For the most part, this is an easy compromise, as SJI does a good job at promoting green energy (recently landfill gas energy) despite having ties to natural gas and other often non-green but necessary solutions. Feeling smug so far!

Brookfield Asset Management Inc. (BAM): one of the biggest, most Wall Street-y VC and asset managment firms there is. While it is true they own real estate assets that provide green energy, this is one of those lump-in-the-throat, close-your-eyes-and-cover-your-ears kind of investments. Brookfield over 2.5 million acres of forest for timber production, including in Brazil, a country notorious for it's deforesting practices and rainforest destruction. They own a hefty stake in the oil sands business, and acres of electricity transmission real estate (read: electric poles). And yet, they are included for their hydro and wind holdings, primarily in Canada. In some ways, you could easily argue that GE is green as well - but this is the compromise green investors have to make.

Owens Corning (OC): the largest producer of fiberglass material worldwide. Though I understand the argument for insulation as a necessary evil for greening the world, Owens Corning is particularly heinous, having had to file for bankruptcy in 2000 medical litigation involving asbestos use in their products. Despite being ranked as one of the best corporations in terms of equality by Human Rights Campaign, Owens Corning ranked 27th on the Toxic 100 Index by the Political Economy Research Institute. Yikes.

Obviously, the overall objective is to provide exposure to leaders in green industry, but there's still some tough nuts to swallow. It gets even worse when you expand to look deeper at Socially Responsible investments. SRI is notorious for having lax standards - MacDonalds is one of the largest held SRI investments in the country. MacDonalds as a standard bearing for responsibility?

For the time being, I guess beggars can't be choosers.

This post first appeared on Smugly Green, please read the originial post: here

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When Is It "Green Enough": The Green Investor Dilemma


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