When President-elect Barack Obama takes office, he will inherit the weakest economy the U.S. has seen in over a half century and a stock market that's reflecting valuations as low as they've been in two decades. He will also inherit an economy and a market with awesome potential.
We have to believe that once investors emerge from the protracted state of shock brought on by the market meltdown of 2008 they will see exciting opportunities for investment. In this environment, green investing may have some of the greatest potential.
Why? For one thing, because the Obama transition team is preparing what's being called the "American Recovery and Reinvestment Plan" to stimulate and overhaul the American economy.
The plan includes short-term strategies to create jobs and grow personal income-both essential for economic recovery. There are also strategies to rebuild infrastructure that will support future growth and lay the foundation for long-term economic success and energy independence.
Lawrence Summers, former Treasury secretary under President Clinton and head of Obama's White House National Economic Council, writes, "The plan represents not new public works, but rather investments that will work for the American public."
More important, at least from the green perspective, the plan will focus on investing in alternative and renewable energy with a goal of ending our addiction to foreign oil. And these investments will address the global climate crisis while creating millions of new jobs at the same time. Some people are calling key aspects of the Obama plan a "Green New Deal."
"Clean energy is going to be the foundation for rebuilding the American economy," said Bracken Hendricks, an analyst at the Democratic-leaning Center for American Progress and an advisor to the presidential transition team. Tax policy is likely to slant toward alternative energy tax breaks, tax breaks for efficiency, and penalties for inefficiency.
Specifically, the official Web site of the Obama transition team (change.gov) says that the new administration will (among other things):
Establish an Advanced Manufacturing Fund to identify and invest in the next generation of innovators and job creators;
Invest in clean energy and create 5 million new "green collar" jobs;
Create new job training programs for clean technologies;
Double renewable energy production and renovate public buildings to make them more energy efficient;
Require that 25% of American electricity be derived from renewable sources by 2025; and
Extend the production tax credit used by American farmers and investors to increase renewable energy production and create new jobs.
All of this means the Obama stimulus package is likely to be bigger, better and more socially responsible than anything the federal government has ever done before. It's reasonable to think socially conscious investors are well positioned to profit from these initiatives.
Investing In Companies Of The Future
Socially conscious investors generally believe that along with the benefits of ownership comes a certain responsibility for the impact their money has in the world. They understand that in today's highly integrated, technologically sophisticated and media-saturated world, every purchase and investment decision they make has an impact on the quality of life our children and grandchildren will enjoy. These investors want their money doing double duty-earning a fair return while making a positive difference.
For the past 30 years, the sustainable and responsible investment (SRI) industry has led businesses through three developmental phases. Phase I called for a "Do no harm" approach that meant avoiding harmful products like tobacco and alcohol when investing.
The headline for Phase II might be "Doing Well by Doing Good." During this phase, many companies reduced costs and enhanced profits by preventing pollution, minimizing waste, making more efficient use of energy, etc.-and all the while garnering public goodwill and attracting socially conscious investment capital.
Phase III may not have a name yet, but sustainable business initiatives are now driving top-line growth by encouraging innovation, increasing sales, improving customer retention and attracting top talent. Some companies are demonstrating how products and services that help customers reduce emissions, save money, lower risks and enjoy more healthful lives can create real business opportunities.
Socially conscious investors are attracted to these kinds of companies of the future-companies that are working in more sustainable industries and whose executive teams have demonstrated a commitment to accountability and ethical practices.
Two newly published books, Investing in a Sustainable World: Why Green is the New Color of Money on Wall Street by Matthew J. Kiernan and Sustainable Investing: The Art of Long-Term Performance, edited by Cary Krosinsky and Nick Robins, both maintain that sustainable investing is the key to long-term profits.
Similarly, Meir Statman demonstrated how ethically invested best-of-class portfolios outperformed their conventional counterparts in a 2008 paper called "The Wages of Social Responsibility," which won the Moskowitz Prize from the Center for Responsible Business at the University of California at Berkeley's Haas School, in cooperation with the Social Investment Forum. A recent book by Augustine Landier and Vinay B. Nair, Investing for Change: Profit from Responsible Investment, echos the message.
What's An Investor To Do?
The liquidity created by the Federal Reserve and the massive fiscal stimulus package may help the economy recover quickly in 2009, especially when this liquidity is coupled with forward-looking political leadership that values science, thinks about the common good and believes in the "polluter pays" principle.
All good, to be sure, but individual wealth and the health of the global economy do not ride on the short-term ebb and flow of stock markets. They depend on long-term investment and long-term value creation. And that's where the real money will be made.
The new Obama administration and the Democratic Congress have a big appetite for environmental regulation, green jobs, clean technology, renewable energy, mass transit and carbon management. As a result, all of these may become more attractive areas for investment.
Google is among a group of important companies lobbying for long-term tax rebates for renewable energy as well as federal investment in electric "smart grid" technology that will have vast ripple effects throughout the economy. "Obama gets that you can't just build windmills and wish for the power to get where it needs to go," says Susan Tomasky, president of AEP Transmission, a subsidiary of AEP (American Electric Power).
Even the simplest ideas could save lots of energy and create lots of jobs. According to Jason Saragian, a spokesman for Owens Corning Inc., "there are 80 million under-insulated homes in the United States." Installing insulation, new windows and other energy-saving materials and technologies in homes, offices and government buildings could create thousands of jobs and significantly reduce energy expenses over the long term.
Calls for sustainable business practices are coming both from company executive suites and from customers. Wal-Mart and other large players are asking their suppliers to reduce packaging, improve energy efficiency and eliminate toxic ingredients in their products. Customers of the construction industry, meanwhile, are asking for more building materials that are sustainably produced and less toxic to building occupants. The evolution in sustainable business practices is quickly becoming a revolution.
So just what is an investor to do in all of this? One can invest directly in companies likely to benefit from the winds of change. And one can invest in mutual funds or ETFs or professionally managed portfolios designed to profit from the Green New Deal. The best approach is always to diversify properly-don't put all your eggs into any one, two or three baskets.
As the world seeks an economic recovery, investments in clean technologies, microfinance and social enterprises offer promising new routes to generating wealth. They'll also go a long way toward helping resolve pressing problems like climate change and global poverty. In the U.S., investment opportunities revolving around the Green New Deal offer the promise of curing America's addiction to foreign oil and providing energy security.
While somewhat depressed by the financial turmoil of 2008, socially conscious investors are delighted by the historic opportunity to address longer-term systemic issues and profit from the coming change. President-elect Barack Obama has been characterized as a centrist. We are now seeing that green investing is part of the new centrism.
Steven J. Schueth is president of First Affirmative Financial Network, an independent registered investment advisor that supports a nationwide network of investment professionals who work with socially conscious investors. First Affirmative produces the annual SRI in the Rockies Conference for the sustainable and responsible investment industry. The 20th anniversary SRI in the Rockies Conference will be October 25-28, 2009. Schueth is a former director and spokesperson for the nonprofit Social Investment Forum. He can be reached at firstname.lastname@example.org.