Shelter from the Storm The Pros and Cons of Green Investing in a Down Market

Ever since venture capitalists began anointing green stocks the next big thing around a decade ago, the sustainability sector has been on a roller-coaster ride. Green stocks fell hard—like the wider market—over the winter of 2008-2009, and have struggled particularly hard to rebound. With share prices of many promising green stocks still wallowing in the recessionary doldrums, many would-be environmentally conscious investors wonder if now is the time to roll the dice and risk their nest eggs on this still-volatile sector. But while all investments carry some amount of risk, most experts agree that the future remains rosy for companies embracing sustainability-oriented business models.

“The universe of high-growth, well-managed and investable companies offering ‘bona-fide’ green products and services is growing,” reports Jackson Robinson, president of Boston-based Winslow Management, a leading green mutual fund and investment company. “Green companies are no longer just young start-ups with entrepreneurs struggling to make payroll and spending more time raising money than building their businesses.”

When Robinson started Winslow in 1983, he says there were hardly any green companies to invest in. Now, his fund managers can choose from upwards of 1,000 publicly traded “green” stocks. Winslow researchers estimate annual growth rates for stocks in the green sector to average some 22% over the next three to five years.

The Move to Renewables

And there’s assurance, on the federal level, that the country is moving in a renewable energy direction. “The president has pledged money to fund the development of green technology,” says David Peltier, a research associate at financial website TheStreet.com.

With the promise of federal contracts regardless of the shape of the economy thanks to Obama’s stimulus plan, many green companies can weather the recessionary storm while they figure out ways to run their businesses in the black.

Despite an overall positive outlook for the sector, Peltier recommends that green investors with weaker stomachs should look to invest in larger, more established companies. In other words, companies that can support their operations on incoming revenues without relying on outside funding, which dried up in 2008 and is only now beginning to trickle back in.

Of course, even larger green companies aren’t immune to wider economic and geopolitical factors. For starters, if the price of oil drops precipitously again, as it did in 2008 as a result of the recession’s onset, stock plays involving renewable energy and even energy efficiency will likely suffer. Those bullish on green stocks in general are keeping fingers crossed that the price of oil stays up in the $80/barrel range to help boost green businesses’ emergence.

Baby Steps

Those looking to dip their toes in the water of green investing before diving in should consider putting a little money into one of some two dozen socially responsible mutual funds. Some of the leaders in this space besides Winslow include Green Century, Calvert, Domini, Pax World and Portfolio 21. Most of these companies offer a variety of funds to cater to investors’ preferences in playing the market.

To wit, Green Century offers both an Equity Fund, which tracks the MSCI KLD 400 Social Index (an index of 400 socially responsible stock holdings small and large, formerly known as the Domini 400 Social Index) as well as a Balanced Fund comprised of not only stocks but also bonds in order to lessen volatility. According to data on the Social Investment Forum website (where users can find a comprehensive chart comparing the performance of some 22 different socially responsible mutual funds), Green Century’s Equity Fund posted a net gain of .07% in average annual growth over the last five years, while the Balanced Fund is up .37%. Although the gains are small, the latter fund posted returns some five times higher than the former, underscoring the wisdom of a more conservative approach within an inherently risky sector.

Whether or not green investing is safe is a question only an individual investor can answer. The old adage of “no risk, no reward” still holds true; those willing to withstand lower lows might just get rich when things do turn around. But for the rest of us just looking to pay some bills and get on with life in a responsible manner, green investing is looking more and more attractive as well.

CONTACTS: Calvert Investments; Domini Social Investments; Green Century Funds; Pax World Mutual Funds; Portfolio 21; Social Investment Forum; TheStreet.com; Winslow Management.

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