Time right for clean tech, renewable energy
History, we have come to learn, is a wonderful guide. Pay attention to past errors, and the likelihood that they will be repeated is dramatically reduced.
Although some say that the oil disaster in the Gulf of Mexico proves that we desperately need more oversight of our natural resources, many others say that we still don’t need any standards at all.
So why should financial advisers pay attention to the natural resources debate? Confusion and misinformation aside, there is growing acceptance that new solutions are required, which, in turn, is giving rise to a growing asset class in the area of clean technology and renewable energy.
The debate over climate change has and will continue to be argued from all sides. As a lifelong investment professional, I have learned to leave my politics and personal feelings at the door and focus on the bottom line — which in this case is: How can advisers and their clients benefit from investments in the growing green movement?
To get a sense of how real this opportunity is, just look at what others are doing.
U.S. energy producers Duke Energy Corp. (DUK) and PG&E Corp. (PCG) are investing in renewable energy, energy efficiency and smart-grid transmission. Meanwhile, Apple Inc. (AAPL) and Nike Inc. (NKE) are incorporating sustainability into their business models.
Even pension giants such as the California Public Employees’ Retirement System and the New York State and Local Retirement System are adopting standards for the incorporation of sustainability and renewable energy investments into their portfolios.
The opportunities in this area aren’t limited to the United States.
European institutional investors, the leaders in sustainable investing, have been putting assets into clean technology and renewable energy for years. China is emerging as a major leader with its installations of solar and wind energy, and new manufacturing facilities that use clean energy sources are being built throughout Asia.
As for the United States, fundamentals are improving, price/earnings ratios are at reasonable levels and companies are reinvesting massive amounts of cash into their operations. Unlike during the dot-com era, most clean-energy companies have real earnings and the initial public offering market is already taking notice with several new launches already expected this year.
Consider the power grid.
Replacing and upgrading an aging 50-year-old electric transmission system is estimated to cost nearly $25 billion a year for the next 20 years. That is half a trillion dollars, and for anyone in the Northeast who remembers the blackout of 2003, it is no laughing matter.
The same holds true for water.
McKinsey and Co. recently estimated that by 2030, “global water requirements would grow … a full 40% above current accessible” levels. Global companies involved in agricultural productivity, and water leakage and repair, are offering solutions and providing new investment opportunities for advisers and their clients.
With the global economy in the early stages of a recovery cycle, advisers who want to get ahead of the curve in this asset class have access to a wide range of investment vehicles. There are more than 1,000 global public companies involved in different sectors of the clean-technology supply chain, including manufacturers of wind turbines and energy storage systems, power load management systems, efficient new lighting systems and water pipes.
For advisers who are looking for broader exposure, several exchange-traded funds and mutual funds are available as well. And for qualified investors, private-equity and niche clean technology hedge funds and funds of hedge funds may be suitable.
It is important for advisers to assess clients’ portfolios and decide which options, if any, fit their long-term investment goals.
Politics aside, planet Earth really is too big to fail and the BP LLC spill is a glaring and unfortunate reminder of that. Investment opportunities in clean technology, as in all industries, will exist on the long and short side, and this is an asset class from which advisers can benefit greatly.
Richard Bookbinder is the managing member of TerraVerde Capital Management LLC. He manages TerraVerde Capital Partners LP, a clean-tech hedge fund of funds.
Learn more about reprints and licensing for this article.
