Volatile economic times have a way of scaring investors into what they perceive as “safe” money moves—investing in large, established companies with long track records and historically healthy returns. Green companies are, in many cases, newer, smaller and considerably riskier. They haven’t been around long enough to inspire confidence, and they are subject to external forces like government policy and fluctuating oil and gas prices.
When these latter prices fall, interest in renewable energy tends to drop considerably. It’s what killed many renewable energy companies in the 1980s. These companies are particularly tied to the changing whims of consumers, too, and rely on homeowners to have the upfront money needed to install technologies like solar panels on their roofs or geothermal heat pumps in their backyards. In fact, says, Jack Uldrich, author of Green Investing: A Guide to Making Money through Environment-Friendly Stocks (Adams Media), the solar industry has been particularly hard hit by the recent economic downturn.
“Solar has been a victim of the tightening credit crunch,” Uldrich says. “A lot were looking to finance expansion into solar, but couldn’t find the money to buy it. The demand is still there.” Plus, he says, the supply/demand equation in the industry is out of balance. “There are too many solar companies right now,” he says. “Some deserve to go under.”
But even as Uldrich admits that green stocks can take sudden plunges, and writes that such stocks should only make up 5-10% of an investor’s portfolio, he says, “I still think cleantech is an outstanding long-term investment trend.” Demand for oil will rise (particularly, he notes, in fast-growing markets like India and China), the price will continue to go up, and the demand for alternative fuel sources can only expand. Add to that equation increased global interest in climate change and tightening government regulations on carbon emissions, and there’s an ideal scenario for green stocks to surge—eventually.
Finding Green Harbors
For those not willing to ride the wave with individual stocks—like SunTech Power, a major global solar man-ufacturer based in China that dropped 90% in value in 2008 following worries that the industry would be hard-hit by the combination of too many solar panels and not enough money to buy them—green mutual funds offer more steady sailing. With a green mutual fund, available from several companies including Winslow Management Com-pany, Green Century Capital Man-agement, Inc. and Pax World Mutual Funds, the company determines the most promising green stocks and diversifies within various industries—from renewable industries like wind, solar and biofuels, to organic food chains and restaurants and companies set up to help others cut energy costs. Normally, green mutual funds would be safer than more traditional mutual fund investments during financially rocky times, says Matthew Patsky, one of two partners in Winslow, which offers the Green Growth Fund (smallcap growth) and the Green Solutions Fund (midcap growth). That’s because the green funds don’t own any stocks in financial companies, the companies most often tied to economic crisis.
But the latest financial collapse, tracing back to global investment bank Lehman Brothers’ bankruptcy filing on September 15, 2008, and followed by a plunging stock market, has left no industry unscathed. “Neither of us has ever lived through anything like this,” says Patsky, referring to his partner at Winslow, founder Jack Robinson. In this kind of economic turmoil, he says, there’s the perception that “there’s no safe place to hide.” But green investments, he says, are already looking at a rebound—and part of that is tied to the Obama administration and its sweeping vision for environmental reform. Only the federal government can set renewable energy portfolio standards across the board (by adopting the standards of the most stringent states), and only those standards can ensure the large-scale financial shift to renewable companies, he argues. “This is not as bad as the Great Depression,” Patsky says, “but it’s the most severe financial crisis since the Great Depression.” But Patsky is confident in the Obama adminis-tration’s push to move the country away from fossil fuels. “Renewable energy, green building, mass transit, improving efficiency,” Patsky says: “It’s gotta win.”