Can you make money and save the planet - Carlson School of ...

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The National Venture Capital Association reported that more than $15 billion was invested in
235 alternative energy start-up firms in 2006, nearly triple the amount venture capitalists put into the
sector in 2000. And Sun Microsystems founder Bill Joy, now with Silicon Valley venture capital firm
Kleiner Perkins, recently noted in an interview that clean technology will be “bigger than the Internet.”
In the past, individuals who restricted their stock holdings for religious or political reasons often paid
a penalty in lower returns. Historically, this has been true of green funds as well, but that may be changing.
An index of companies working to mitigate global warming and its effects is up 25 percent in the past year,
according to KLD Research and Analytics, a Boston-based research firm for socially responsible investments.
“Capitalism can be the environmentalist’s friend,” says Mark Thompson ’82 BSB, CEO of
Riverbridge Partners, a Minneapolis-based portfolio management and financial planning firm.
Connie Rutledge, assistant director of the Carlson Venture Enterprise, echoes that
comment. “There’s a lot of consumer awareness today about a green lifestyle and that is fueling
investment,” she says. “Hopefully, we won’t over-hype it so that everyone ends up disappointed.”
“ Frankly, I think
technological
progress is
the best thing
for the greening
of America.
Perhaps the
best thing I
could do as an
investor would
be to put my
money into
technology.”
20 University of Minnesota
How green investments work
Investors use a variety of approaches to test the green-ness of their investments.
Stock indices, exchange-traded funds, and mutual funds have varying definitions
of what makes for a green stock. Most green funds use a negative screen to
remove stocks that don’t meet their criteria for environmental friendliness. If
a company is in oil or nuclear energy, for example, it’s out. Financial planners
working with individual investors may have questionnaires to assess how the
investor defines green. The negative screen tends to steer green funds toward technology
and financial services and away from industrial or materials stocks. Some investment
vehicles use a positive screen as well as a negative one, seeking out companies with
investments in natural foods or alternative energy. Both positive and negative screens
lead to a less diversified portfolio, and they don’t always produce a “lily white, or rather
lily-green” portfolio, says Ian Maitland, professor of strategic management at the Carlson
School. For instance, the Sierra Club’s Mutual Fund is heavily invested in casino stocks,
apparently without regard to all those lights blazing in Las Vegas. General Electric, which
is invested in wind power and is a member of the U.S. Climate Action Partnership, shows
up on some green stock lists, despite the company’s long battles with environmentalists
over GE’s alleged dumping of PCBs in the Hudson River. “No topic is more technically
complicated than the environmental impacts of corporate activity,” Maitland adds.
Organic farming, for example, requires more land under cultivation to produce the
same amount of food as farming using synthetic fertilizers, and could be considered
environmentally harmful. Nuclear power is cleaner than coal, but most green investors say no.
What about the big players? For example, is Wal-Mart a green stock because the company has
vowed to double the gas mileage on its fleet of 7,000 trucks by 2015? That would make a dent
in carbon dioxide emissions.
Maitland, who describes himself as a “mild skeptic” about the effectiveness of green
investing as a political and an investment tool, says the use of negative screens produces
largely symbolic benefits to the investor. Unless large institutional investors divest
themselves of a stock, the impact on the company is negligible. “If the basic fundamentals
have not changed, the stock price should not change,” he says. “The company isn’t hurt
[by the divestment] and the individual isn’t hurt. It’s a little like ethics on the cheap.”
However, green investors generally have paid a price for their ethics in lower returns.
Because of the lack of diversity and the tendency to be involved in riskier ventures, green
investment funds have traditionally under-performed the market. Consider the case of the
Green Century Fund, one of the oldest green funds. Founded in 1991 by several state Public