Editorial

The Benefits of Buying Green Shares

Forbes magazine recently ran a story "Does Buying Green Stocks Do any Good?" It's a good question, and the writer, Tom Konrad, covered most of the answers, but there are also a few other points worth making.

Konrad says one of the benefits of buying green stocks is that it helps keep up their share price and so decreases the cost of capital for those companies, helping their expansion. It can also possibly take away capital and support for non green stocks.

But he thinks small investors don't have enough clout to make this theory pan out in reality and that it needs big investors to make a dent.

This may apply to larger green companies, of which there are more in America. But in Australia, where green companies are smaller, we have many examples of where a large retail investor base can make a difference.

Often it is the retail investors who buy the shares of innovative early stage companies and their IPOs while larger investors come in later when there is less risk. A recent example of the power of retail investors is solar energy developer Dyesol whose shares skyrocketed, its purchase plan was ten times oversubscribed and the company doubled how much capital it accepted.

Konrad says where retail investors can make a real difference is companies raising money for green investments. This also happens often in Australia.

A benefit Konrad doesn't mention is that holding green shares that were bought on market is likely to make an investor more aware of when that company has a retail capital raising through a rights issue, share purchase plan or dividend reinvestment plan, and more knowledgeable about whether to participate.

Konrad says buying shares on market supports the IPO market as it helps keep up that sector's stock prices, and the prospect of a future high valuation IPO and exit encourages venture capitalists to invest in other companies and technologies in that sector.

No one would argue with that. This is a very tangible way in which buying shares on market encourages green innovation.

Also beneficial is that buying green shares has a public relations function as it is likely the investors will talk about the companies, technologies and issues.

Konrad also mentions the feel good factor. He examples electric car owners who feel great when they drive past a petrol station. I'd feel great too. But not just because I was helping the environment; also because I no longer had to give my money to the wrong people. And because I no longer had to give any money at all.

But Konrad's point is that share portfolios are different to cars. Although there are plenty of reasons to feel good about good environmental investments, he says most investors don't make the emotional connection between their green stocks and the success of the green companies.

I'm not so sure. When it comes to renewable energy most people understand it is a global issue for mankind, and it connects to the emotional issue of their children's future. Through investing in energy efficiency they can feel good about companies that lower power bills. They can even feel good about garbage. Transpacific Industries picks up our rubbish every Tuesday morning and knowing we have shares helps me to put up with if not enjoy the very early morning sound of their truck.

Another good point he makes is that we should look past the effect our investments have on companies and "consider the effect our investments have on us... If we invest in companies that stand to lose from the shift to a sustainable economy, the vested interests we are fighting are our own. Much better to invest ourselves, both financially and emotionally, in companies that will benefit from the changes we know must be made to protect our planet and our children."

In a good piece, Konrad rightly concludes "Even the smallest investors' green investments make a difference."

I also like his summary of the pre-GFC and post GFC market. "In 2007, when practically any stock which could be labeled green was going stratospheric, my phone was ringing off the hook. Then came the crash in 2008, with green stocks falling more than the market as a whole... calls from new clients became very few and far between."

Konrad say that green stocks began to rally in late 2012 and his phone is ringing again.

That broadly mirrors Eco Investor's experience, though we could do with a few more enquiries from prospective subscribers.

I also like his comment that "As someone who helps people invest in green stocks, I can tell you from first hand experience that investor enthusiasm has everything to do with recent financial returns, and not much to do with the good we're doing."

The more people who have shares, the greater the pressure on management to perform and deliver a good green product and a good investment return, which together make for a good green company. That's another benefit of retail investors buying green shares.

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