"These were small projects that didn't have a strong focus," Snow says. After it saw Gore's film, An Inconvenient Truth, the foundation was inspired to devote the 5% of their distribution requirement to climate change.

With that in mind, Foundation Source located an expert (a former Clinton Administration official who worked on global warming policy) to sharpen the foundation's focus in that area. He directed them to a funding opportunity in an underserved area-making utilities more efficient-where they could have a significant impact on climate change by reducing greenhouse gas emissions.

That area is now the foundation's sole grant-making focus. In addition, Snow says they've asked their investment advisor to invest some of the remaining 95% in environmentally related opportunities.

Green Investments

On the equity side, green investing is an area filled with hope and fraught with hype. "The trend is unstoppable," says Rafael Coven, managing partner at Cleantech Indices, a developer of indexes tracking green tech stocks. "The demand for clean water and energy, less pollution and more efficient agriculture won't stop given the pressures the world faces."
Green technologies is a vast sector that includes renewable energy such as wind, solar, geothermal and biofuels, along with clean technologies that help businesses boost performance more efficiently and with less environmental impact. Clean tech runs the gamut from smart meters that efficiently regulate electricity and water usage to processes that convert manure into energy.

Hilary Kramer, president of Green Tech Research, a hedge fund focused on alternative energy and clean tech investing, says her fund's investment universe comprises 515 companies with a combined market cap of $3 trillion. She sees tremendous global growth potential, and some of her favorite plays are companies that provide unsexy-yet vitally important-products and services. One example is Orion Energy Systems, a maker of lighting systems for large commercial and industrial warehouses that are 50% more efficient than standard lighting. Two other favorites include Veolia Environment, an energy, waste and water management company; as well as Metalico, whose scrap metal recycling business provides valuable raw material for the steel industry.

"We're at the very beginning of this cycle," says Kramer about green tech. "But it will be very volatile, and a lot of people are going to be knocked around by it. Some companies will go down and never get up and others will become powerful leaders."

Indeed, painful volatility recently wacked the stocks of many renewable energy companies-particularly solar stocks that soared in 2007, only to crash earlier this year before rebounding somewhat off of their gut-wrenching lows in the spring. Solar, along with wind and geothermal energy sources, relies on government subsidies to be reasonably cost-competitive with traditional energy sources such as coal or hydro. Pollution and energy security worries make renewable energy a viable long-term play, but it'll likely be an evolving space.

For example, last year she saw a glut of initial public offerings for solar companies making photovoltaic (PV) panels that use polysilicon cells to convert sunlight into electricity. Coven believes that 80% of solar PV companies will cease to exist within a decade because they're essentially pursuing the same undifferentiated business model for a commodity-type product with little pricing power.

"The key is finding differentiated products with clear competitive advantages," says Coven, whose index underlies the PowerShares Cleantech Portfolio exchange-traded fund. He's particularly skeptical about ethanol and so-called clean coal technologies due to concerns such as costs, technological feasibility and the moral dilemma of using food for fuel.
But Coven's dislike for ethanol isn't shared by the likes of Bill Gates and prominent Silicon Valley venture capitalists who have invested in the space, along with green tech in general. Coven reports that clean tech alone is now the third-largest venture capital sector, but he cautions that not all of those investments are chasing good ideas. "There are a lot of big-name VCs jumping into this space who I think are going to get burned," he says.