Investing in Green Technology Companies and Stocks
TABLE OF CONTENTS
- What Are Green Technologies?
- Renewable Energy Stocks and Companies
- Water Technology and Desalination
- Agtech Companies and Stocks
- Food Technology Companies and Stocks
- Investing in Electric Vehicles and EV Charging
- Investing in Batteries and Grid Storage
- Waste Management Stocks and Companies
- Investing in LED Technologies
- Penny Stocks, Stock Promoters, and Shills
- Does Sustainable Investing Outperform?
What Are Green Technologies?
The term “green technology” simply refers to ways in which we can use technology to make the world a better place. Spend a few weeks wandering around Bangladesh and you’ll quickly understand that there’s more to the problem than just bringing your own bags to the grocery store. It’s a global problem, and every country needs to address it differently. Even outside country borders in international waters there’s a problem, as giant islands of rubbish now float around in our oceans. Water is the new gold, as countries rush to secure fresh water supplies for growing populations. All those new mouths need food to eat, so we need to reduce food waste. Now that wind and solar are cheaper than coal, there’s a rush to renewable energies which should pacify even the most staunch environmentalist.
Speaking of which, you’re not going to hear us piss and moan about climate change because that term is now being used for political gain. What the donkeys and elephants don’t realize is that this a debate that’s not worth having. Regardless of where you sit on climate change, we’re all better served if we clean up the planet. This is probably best summed up by the below cartoon.
The global population now stands at 7.8 billion, a number that’s growing about 1.1% every year. This growth is trending downward, but it still means 86 million people – about the population of Germany – are plopped down on this planet every year. These newcomers need clean air, clean water, food, shelter, sleep, and clothing in order to survive. Then after that, we can move them to some higher rungs of Maslow’s hierarchy of needs – like consumerism and poorly-written sitcoms.
The problems we need to solve with green technology also provide an opportunity for investors to make profits. It’s hard to scale a solution if it’s subsidized. A solution that generates a meaningful profit will likely scale all by itself. Successful startups and listed companies working on green technologies allow investors to do well while doing good.
Mainly it’s other technologies that are letting us “go green” while making a profit. Advances in materials science mean we can extract energy from the sunlight that passes through windows. Looking to nature for answers, startups are now producing products that mimic plants and animals, something referred to as biomimicry. Fungi are being used for manufacturing along with microalgae. We’re now growing recyclable building materials and special pavement tiles can now harvest kinetic energy from people’s footsteps. Mining may be a dirty business, but even the world’s biggest miners are moving to ethical mining where diesel-burning mining equipment is replaced with electrical alternatives. Machine learning algorithms can now itemize your electricity bill down to the last cent, or figure out how a commercial building can save 30-50% in energy costs. We’re developing smarter electric motors that use less energy. Smart receipts save trees, and new business models increase vehicle utilization. From transporting cars using hyperloops to cities that float on the ocean, the sky’s the limit when it comes to ideas on how to make the world a better place.
Given all the innovation that’s happening in green technology, we decided to consolidate it all down into eight themes that present a solid investment thesis for investors. These are as follows:
- Renewable energy
- Water technology
- Agricultural technology (or agtech)
- Food technology
- Electric vehicles
- Waste technologies
- LED lighting
If you are relatively new to investing, we recommend that you read our Complete Guide to Buying Stocks for Beginners before continuing. Even advanced degrees in finance don’t cover the many pitfalls out there that can befall first-time investors.
Renewable Energy Stocks and Companies
Renewable energy (also referred to as alternative energy or clean energy) is energy that comes from resources which are naturally replenished on a human timescale. It’s not all about solar and wind power. Rain, tides, waves, geothermal heat, and biofuels, are all considered sustainable energy sources. While there is some debate around nuclear energy being renewable, we consider fission and fusion to be a clean alternative to conventional sources like coal or natural gas. Because this topic is so varied, we’ve created a separate guide on Investing in Renewable Energy Stocks and Companies where we look at the specifics for each type of renewable energy and list all available investment opportunities we have found so far.
Water Technology and Desalination
Fresh water is required for life and is a scarce resource. Less than 1% of the earth’s water is freshwater, and even this amount is unevenly distributed across the planet. Over 780 million people – one in ten people globally – lack ready access to clean water which leads to health issues, child mortality, and a major loss in productivity (women and girls spend an estimated 200 million hours hauling potable water every day).
Water crises are not limited to underdeveloped areas. Urbanization also plays a big role in water scarcity with many large cities facing water stress. Cape Town in South Africa had a close call in 2017-2018, and Chennai is still struggling to provide clean water to its citizens. The global water crisis is now upon us and needs to be addressed promptly. Investing in water infrastructure companies, desalination companies, and water ETFs are all viable options investors can consider. For those interested in some water-related exposure we did a deep dive titled “Investing in Water Technology and Desalination Stocks & Companies.”
Agtech Companies and Stocks
After you secure a fresh water supply, the next thing you need to survive is food. Most of us rely on a small percentage of the population who grow food for all the rest of us. Since land is scarce, we’re having to come up with more creative ways to increase yields on the same footprint. It’s something you’ll also hear referred to as “smart farming.”
One way to increase yield is by modifying the seed itself, something that’s also referred to as “plant sciences.” One of the world’s biggest agtech startups, Indigo Ag, coats seeds with microbes that help increase certain traits like drought resistance. A handful of startups are predicting crop yields more accurately which helps farmers operate more efficiently. Natural fertilizers and synthetic fertilizers promise less damage to the environment along with a cheaper alternative to traditional fertilizers. Autonomous tractors till the soil while satellite images are used to guide crop management.
If you think that most these agtech startups come out of the Silicon Valley Vatican, think again. Venture capital (VC) dollars have been pouring into agtech startups across the globe in places like Brazil, Canada eh, Indonesia, and – the country most Americans equate with safaris – Africa. Of all the places we’ve looked at agtech startups, one country stood out among them all as a goldmine of agtech talent that seems to be flying under the radar of many investors.
Agtech in New Zealand
A few years ago we received an email from Wayne McNee, the CEO of New Zealand dairy company LIC, who said that some of the dairy tech and herd management startups we featured as “leading edge” were actually old news. “If you want to see some real agtech innovation, come to New Zealand,” he said. So we did.
The first thing we did was visit with LIC and learn about how much innovation was happening in New Zealand’s dairy industry. This is a company that has their fingers in 93.5% of New Zealand’s national herd. Think about how much they can learn when they start using satellite imagery to gauge grass growth or daily milk samples from herds to measure output. When their Head of Innovation said we ought to visit some startups they thought were truly innovating, we spent a month there meeting some exceptional agtech startups such as:
- OnSide – Tracks movement on farms and farming assets with a clear path to building a biosecurity solution based on all the data they’re amassing.
- Lanaco – First they bred the world’s tastiest lamb, then they went on to develop the world’s most expensive high-performing face mask. Of course, it’s made from the world’s best wool for filtration, Astino.
- Quantec – Patented a formulation based on milk bioactive proteins which is being sold in volumes to the Chinese. And that’s only part of the story.
Perhaps the most exciting New Zealand startup we came across was Halter and their herd management solution. They make collars for cows that do all the usual stuff like tracking health, mating, and the location of your cows. But what they do that’s cool as hell is they let you control your cows from an app. That’s right, the collars make the cows move based on vibrations so you can control them.
Think about how much money could be saved if livestock could be controlled remotely. Almost sounds too good to be true, and that’s why Halter pitched to investors once with a group of cows on Skype, each cow standing in formation with a number on it. An investor was asked to pick a cow from the lot. When they said the number, the cow walked up to the front and stood there. Checks were written.
If you’re really interested in deep-diving into our New Zealand agtech research, we’ve put together a report titled “How New Zealand’s Dairy Industry Innovates” which highlights all the companies we visited with, including LIC. It’s an interesting read.
You can’t talk agtech without mentioning indoor farming, something that marijuana growers have been working on for centuries. Today, over a billion dollars have been invested in a long list of indoor farming companies that are all using technologies like efficient LED lighting, environmental sensors, and nutrient monitoring to maximize every single variable possible in a grow operation. Over time, all this data exhaust can be mined for insights.
While some indoor farms plan to operate at a massive scale, we’re not convinced that there’s much gold to be had selling over-priced leafy greens to “farm-to-table” restaurants that overcharge their clients even more. Attractive business models will provide vegetables at scale with price points at or under regular vegetable prices. Then, the business model becomes attractive as a way to feed people without having to transport so much food.
With the pandemic of 2020 upon us, indoor farming has been continuing to gain momentum, even though there’s been a drought in funding.
Another indoor farming trend that’s being thrown around is container farming which generally means converting old shipping containers into grow rooms. A container in the grocery store parking lot churning out vegetables has to be a great idea, right? Not necessarily.
In order to study the economics of container farming, we traveled to a country where the vegetables are more expensive than anywhere else in the world – Nauru. It’s the least visited nation in the world inhabited by the world’s most obese people. Our back of the napkin math showed that a container farming operation would be a risky enterprise for anyone to undertake, not just in Nauru where there were some understandably challenging conditions. From what we’ve seen so far, container farming is not economically viable.
When it comes to investing in agriculture, we’re long-time investors in Archer Daniels Midland (ADM), but for dividend growth reasons. ADM probably uses technology in all aspects of global food processing and commodity trading but you would hardly consider them a pure-play on agriculture technology. We have only come across a few names that would be considered pure-plays on the agtech theme. One of those is Arcadia Biosciences (RKDA) which was supposed to be heading for greatness with their patented seeds that expressed desirable traits. Since that 2015 IPO, shares of Arcadia have fallen -96%, leaving us to conclude whatever value-add they were touting to investors never panned out.
Some other names like Yield10 Biosciences (YTEN) or Evolva Sciences (EVE:SW) would also be considered agtech stocks, and you can read about them both in our guide to Investing in Synthetic Biology Stocks and Companies.
You may have wondered why we haven’t talked about Beyond Meat (BYND) yet. That’s because we consider that company to fall under a similar category we’re calling “food technology.”
Food Technology Companies and Stocks
Food technology is when we start to play with producing food in ways we hadn’t thought of, or even consuming things you wouldn’t think of like insects or even soylents. (Using insects for animal feed might be the way forward though, and French startup Ynsect appears to be leading the charge.) Some ambitious projects being worked on by food tech startups include an organic sugar substitute that actually tastes good to help combat obesity, and an organic coating which extends the life of fruits and vegetables. Aside from that, most of the buzz in food tech is mainly around the whole fake meat boom.
One area of food technology that’s getting loads of attention from investors and the general public is “fake food” which simply refers to the many types of foods that are now being produced which are supposed to resemble the organically produced thing. The most interest seems to fall on alternative proteins which are now being generated using numerous methods. We now have fake seafood that’s grown in labs or made out of plants finding its way into kitchens with rave reviews.
But, we all know that only one thing will ever taste as good as the original thing. That’s right. The original thing. So why buy fakes? Presumably because they are better for the environment and/or are cheaper alternatives. Many people think fake foods check none of those boxes, but consumers don’t seem to care. Investors have taken notice of all this public interest as evidenced by the Beyond Meat IPO which soared 840% in just three months. Even with the pandemic, sales continue to soar for Beyond Meat which is now expanding internationally. Another publicly traded food tech company that cropped up recently is Agronomics, a firm run by the extremely successful lads who sold Innocent Smoothies to Coca-Cola for $560 million. We recently covered one of their investments in an article titled Air-Based Protein – Creating Food Out of Thin Air.
Investing in Electric Vehicles and EV Charging
Electric vehicle (EV) adoption is growing exponentially thanks to advances in technology. Improved battery efficiencies, faster charging times, and an ever-expanding network of charging stations make electric cars appealing to a broader set of potential buyers. When you combine the appeal with government incentives for buyers, EVs are now viable alternatives to cars with internal combustion engines. While the real ecological footprint of EVs depends on each country’s energy resource mix, electric cars at least provide the opportunity for a greener transportation industry in the future.
Even assuming a rapid transformation of the passenger car fleet to electric, oil companies are safe for the time being as fossil fuel consumption by other industries will continue. Still, the EV market promises a great deal of growth ahead making it a solid investment thesis on its own. That’s why we put together a Guide to Investing in Electric Vehicle Stocks and Companies which looks at how retail investors might get some exposure here.
Investing in Batteries and Grid Storage
The Growth of Lithium-Ion Batteries
The advent of dense lithium batteries brought us things like electric cars, drones, and smartphones. As battery technology improves, expect more things to be electrified. The need for more electricity means we’ll turn to the cheapest ways to produce it – renewable energies, like wind and solar. Of course, wind only blows sometimes and the sun only shines during the day. That’s where we need giant batteries to store the energy, something that’s referred to as “grid storage.” The growth of home solar installations means we’ll need batteries for homes as well, a market that Tesla is trying to corner, while other companies eye the same prize. That supercomputer you carry around in your pocket, your smartphone, also needs a battery to power it.
Regardless of the form factor that batteries take, there is still lots of room for improvement. Investors continue to pour money into lithium-ion battery startups that are working on everything from performance to sustainability. Many startups are focused on improving just a single battery component – the cathode or the electrolyte, for example – with a focus on making their technologies easily fit into existing battery production processes. Others are working on how we might print batteries or make them flexible. Ultimately, it comes down to improving cycles (lifespan) and density (storing more energy). A recent innovation trend that’s been receiving an increasing amount of funding is silicon anodes for lithium batteries. These types of batteries promise to last more than 20% longer on a single charge.
Aside from making lithium-ion batteries store more energy, there’s also a need to make them charge quicker and more conveniently. A number of companies are working on wireless charging so you don’t even need to plug your smartphone in. While there’s lots of innovation happening around wireless electricity, just beware of the touts telling you to invest in nanocrystal electricity stocks.
Another type of battery being developed by a number of companies is the solid-state battery which uses both solid electrodes and solid electrolytes, instead of the liquid or polymer electrolytes found in lithium-ion or lithium polymer batteries. One leading solid-state battery startup, Sakti3, was purchased by Dyson for $90 million in 2015. Since then, Dyson appears to be moving away from electric vehicles and more towards solid-state batteries, though they did write off a good chunk of the Sakti3 acquisition. Another startup, Cymbet, has taken in over $80 million in funding to develop the world’s smallest solid-state battery which is 100X smaller than coin cell batteries.
We did find one publicly traded stock, Ilika (IKA:LN), which is a pure play on solid-state batteries. With a small and growing stream of revenues, the company expects that their latest cash infusion should transform their manufacturing process so they can finally start selling batteries at scale.
Investing in Lithium
With companies like Tesla producing batteries at a massive scale, investors have turned to raw materials such as lithium and cobalt as an investment thesis. ‘Don’t invest in lithium mining companies’ was an article we published about five years ago which argued that the three companies that produced 90% of the world’s lithium – FMC Corporation (FMC), Albemarle (ALB), and Sociedad Quimica y Minera (SQM) – only had a small percentage of their revenues attributable to lithium. Turns out we should have skated to where the puck was going to be. One year later, all three of these companies were generating meaningful profits from lithium.
A valuable lesson was learned. While revenues today may not indicate a “pure-play” investment, things change quickly. One also needs to consider profitability alongside revenues. Also, note that FMC has since spun out its lithium operation as a separately traded entity under the name Livent Corporation (LTHM). Still, you wouldn’t have fared well investing in lithium miners over the past decade, something we touched on in a recent piece titled Investing in Lithium Hasn’t Panned Out. Yet.
Investors remain interested in lithium as an investment thesis as evidenced by The Global X Lithium & Battery Tech ETF (LIT) which invests in the full lithium cycle, from mining and refining the metal, through battery production, and has attracted over $500 million in assets. For global investors, there’s also a Chinese lithium company to consider as well – Ganfeng Lithium Co (002460:CH).
Lastly, note that lithium junior mining stocks are very risky ventures and should best be avoided by retail investors.
Most people don’t know that the most popular form of energy storage at scale is pumped-storage hydroelectricity which involves two water reservoirs at different elevations that generate electricity when needed. At times when electricity is cheap, it’s used to pump water from the lower reservoir to the upper. Then, when electricity is needed, water from the upper reservoir flows to the lower reservoir while turning turbines that generate electricity.
It’s an elegantly simple solution that stores most of the excess electricity at the moment.
Grid-scale energy storage is about using batteries to store energy instead. We can’t just go around building reservoirs when we need them. Batteries offer a much more flexible solution, not to mention much lower capital expenditures to implement. Here’s a look at the various types of grid-scale storage.
A flow battery is a type of rechargeable battery in which large tanks of chemicals are used to create chemical energy which is then converted to electricity. While more complicated than standard batteries, the advantages of flow batteries include flexible layout, long life cycle, quick response times, no harmful emissions, and in some cases low maintenance. Let’s look at the various types of chemicals being used to produce economically viable flow batteries.
Vanadium Flow Batteries
While the technology for vanadium batteries was invented in 1985, the batteries have been limited by two factors: the cost of vanadium and the fact that the electrolyte becomes unstable at 95 degrees Fahrenheit. Flow battery startup Imergy raised more than $100 million from investors trying to solve these problems. After pivoting several times, they imploded in 2016.
Another startup building flow batteries was Prudent Energy which took in just over $51 million in funding to their patented “Vanadium Redox Battery Energy Storage System.” We can’t find any news of the company today and their website no longer functions.
Another dud was American Vanadium Corp., a publicly traded company. They’ve since been renamed to Monitor Ventures Inc., “a publicly traded venture company seeking a new business venture that has significant growth potential, dynamic drivers and an engaging story.” We’ll pass on whatever that story ends up being.
Zinc-Bromine Flow Batteries
Another publicly traded company trying to bring flow batteries mainstream was ZBB Energy (now named EnSync) which was developing a “zinc bromine battery.” Given their relationship with one of Asia’s top chemical companies, the CEO painted a rosy picture of where the company was headed. At that time, ZBB had a market cap of $14 million (after their share price had fallen -97%). Today, they have a market cap of less than $500,000, which means anyone who rode that to the bottom lost all their money doing so.
Another publicly traded company developing zinc flow batteries was Australia’s Redflow which is developing small zinc-bromine flow batteries. After realizing how difficult it was to sell these batteries as a residential solution, they’re now focused on cutting production costs. Hopefully, they’ll be able to buck the trend of flow battery failure stories and realize some meaningful revenues someday.
The number one goal for any business is to survive, and that’s what our next company has been able to do. Primus Power has taken in just over $90 million in funding with their most recent round, a Series E for $32 million, closing in 2017. One of Primus Power’s advantages is that its zinc flow battery only has one tank and no separator so the system is more efficient than others on the market that use two tanks and a separator. The company’s latest product, the EnergyPod 2, is now being shipped to customers worldwide.
Iron Chromium Flow Batteries
EnerVault took in around $26 million to build flow batteries using iron-chromium materials which were said to be one-sixth the cost of the vanadium used in flow batteries. They even had an actual battery installed at a California almond farm. Sadly, it was not meant to be, and in 2015 their assets were liquidated.
Other Flow Batteries
Various companies have tried to address grid-scale energy solutions using other methods. 24M Technologies was using some proprietary “black goo.” They’ve since pivoted into semisolid lithium-ion batteries. Ambri is building a liquid metal battery that appears to have some traction. NEC has committed to a minimum purchase of 200MWh of cells from Ambri, with deliveries said to have already begun. Aquion Energy was developing saltwater batteries until they filed for bankruptcy. They’re now under new ownership making it difficult to know what progress is being made, if any.
Lastly, we should mention that the humble lead-acid battery that’s found in most motor vehicles is also being looked at for a renovation. A number of companies are working on technologies to improve lead-acid batteries. What’s interesting about lead is that its chemical properties are such that it can be recycled indefinitely. Because of this, 57% of refined lead production is derived from the recycling of scrap batteries. That’s a surprisingly high number and makes lead the world’s most recycled material.
Waste Management Stocks and Companies
About 7.8 billion of us are consuming stuff relentlessly, and a large part of our consumption is wrapped in plastic. The world generates at least 3.5 million tons of plastic a day, and that’s just part of all the municipal solid waste that gets generated per year. It’s not just about recycling more plastic, it’s about improving the recycling process itself.
Recycling plastics is nothing new. The technology has been around since 1972, but the issue is that each time plastic is recycled, additional virgin materials must be added to help improve the integrity of the output material. So, even recycled plastic has new plastic material added in. The same piece of plastic can be recycled about 2–3 times before its quality decreases to the point where it can no longer be used. There are a number of companies working on a solution to this problem. Some are using bacteria to turn non-degradable plastic into a biodegradable state. Others are working on creating plastics from air and methane emissions that can out-compete oil-based plastics on price. A new breed of startups want to do away with using plastics altogether by inventing greener packaging solutions and plastic alternatives.
Then, there are so-called thermoset plastics, the kind used in aircraft, cars, and computer casings that are made to be very durable but, once shaped and cooled, cannot return to their original form. Companies like IBM (IBM) and Baker Hughes Inc. (BKR) are working on new kinds of thermosetting plastics that can be dismantled as well. These stocks are large conglomerates that are far from being pure-plays on plastic recycling. One stock that might be more of a pure-play investment is Loop Industries (LOOP). Loop is a Nasdaq-listed company that owns patented technology which breaks down no and low-value waste PET plastic and polyester fiber to create virgin-quality plastic resin and polyester fiber. Another investable (but niche) market segment on the recycling theme is the recycling vending machines you find in supermarkets.
Industrial waste management is not just about plastics. Municipal solid waste (MSW) needs to get sorted first so that garbage plants can get to the recyclable part. This is what Barcelona-based Sadako does without any human intervention using machine learning and computer vision. All the food scraps found in MSW are a waste category that costs the world a whopping $1 trillion per year. These can be pulled out and made into fertilizer, animal feed, alcohol, and even surface cleaner when treated the right way.
With the right processes, MSW can also become energy. Californian startup Fulcrum BioEnergy developed a proprietary thermochemical process to convert household garbage into low-carbon transportation fuels. MSW can also be burned to power homes. This is what New Jersey company Coventa (CVA) does. Coventa is the US leader in waste-to-energy and operates 41 waste-to-energy facilities that turn about 21 million tons of garbage per year into power for more than one million homes.
Investing in LED Technologies
First invented in 1962, the light-emitting diode (LED) is a type of solid-state lighting that uses a semiconductor to convert electricity into light. LEDs can last up to 25 times longer than an ordinary incandescent bulb, and use 75% percent less energy to produce the same amount of light. That’s because your bog-standard light bulb releases 90% of its energy as heat. It seems inevitable that technologies like LEDs and plasma lighting will become pervasive, but it takes time.
We first started looking at the LED investment thesis about six years ago highlighting companies like Soraa, founded by Shuji Nakamura, Nobel Prize winner and the father of modern-day LED lighting. After taking in over $100 million in funding they were acquired by another LED company called Ecosense which has taken in about $56 million in funding. Another LED startup to get acquired was Bridgelux which sold out to Toshiba.
There’s still plenty of innovation still to be found from exciting startups like micro LED marker Rohinni which has been flying under the radar in Coeur d A’lene Idaho. Some of the companies we covered are still going strong having avoided any exits. Intematix raised around $42 million to become a leading provider of phosphor solutions to the LED lighting and display industries. Leotek’s LED streetlights were first designed and delivered in 2007, and the company now has more than 2 million installations across North America. (Recently, they’ve had some problems with defective streetlights.) As you would expect, there have been failures as well, like high-flying LED startup Switch Lighting which flamed out after gracing the cover of Wired.
For retail investors, there are a handful of stocks that provide exposure to the LED lighting thesis like Cree (CREE), Epistar (2448:TT), and Osram (OSR:GR). (Be sure to check out the follow-up article we did on Cree titled Investing in Gallium Nitride and Silicon Carbide.)
Lastly, an LED stock we discussed before, TCP International, has been delisted since their former CEO bought the company and made it private.
Penny Stocks, Stock Promoters, and Shills
When you see a stock soaring for no reason, go to the investment message boards like InvestorsHub and see if it’s being pumped by shills. Stock promoters often try to find exciting technologies like wireless charging or flow batteries and use these to attract investors to a particular stock that’s “going to the moon.” We typically see this happen with penny stocks (more accurately referred to as over-the-counter (OTC) or pink sheet stocks).
Whatever you do, don’t invest in any stock that doesn’t trade on a major exchange. That’s rule one. Rule two is that you don’t invest in stocks that some digital nomad in Jamaica is trying to peddle – like nanoelectricity. Always question the motives of the person pushing some stock on you. Thirdly, stay the hell away from all the energy storage SPACs, or any SPAC for that matter. Lastly, if some moron tells you to invest your hard-earned money in a single stock – no matter what that stock is – you know they don’t have your best interests in mind. Anyone who has the slightest knowledge of finance knows that diversification is the only way to be a successful investor. Period. Stop trying to find the next Microsoft.
Does Sustainable Investing Outperform?
First, let’s talk about some definitions. Green-tech investing goes by a number of names such as sustainable investing, socially responsible investing (SRI), impact investing, environmental, social and governance (ESG) investing, and the list goes on. The below chart highlights the differences between some of the more commonly used green-investing methods:
To keep things simple, we’re going to refer to all of the above types of investing as sustainable investing, and ask a simple question – does sustainable investing outperform?
Many companies like Swell Investing are now pandering to the demand by today’s millennial that every investment needs to be green. That’s commendable, but when you work hard your whole life to save up money to live on, it needs to generate acceptable returns. We’re not here to subsidize the world’s problems, we’re here to identify profitable investments as our first criteria. Saving cute panda bears comes in at a close second. When we see business models that remove carbon dioxide from the atmosphere at a much higher cost than they can sell it, we’re not interested. (Contrast that to LanzaTech which used synthetic biology to develop a microorganism that eats carbon dioxide and craps out fuels and chemicals, or Liquid Light’s electrochemical production method for turning CO2 into chemicals.)
We’re also not interested in investing in something when nobody can agree on what it actually is. If you dig into the methodologies used by index providers offering “sustainable investments,” you’ll notice a few things.
Firstly, there is no consistency across companies. This is a cardinal sin. If someone wants to invest in ESG stocks, you want to make absolutely sure that’s what they’re getting exposure to (in other words, you’re rewarding the right people). If you’re not, then what’s the point? We’ve actually seen some companies using “social media data” to calculate ESG scores. It’s an absolute joke.
Secondly, we don’t like companies that cherry-pick some arbitrary time to demonstrate outperformance. One index provider likes to drone on about how companies that have board members who belong to “disadvantaged group X” outperform other companies that don’t – then they’ll list in the fine print a timeframe like “between 2005 and 2009.” Cherry-picking time frames to prove your investment thesis is rubbish. You can always torture the data and make it say whatever you want.
Some years ago, we raised the question – Does Socially Responsible Investing (SRI) Outperform? In that article, we listed out a whole bunch of studies that looked at whether or not SRI or ESG or impact investing actually generate alpha for investors.
As you can see, the jury is out. If you decide to be a sustainable investor, don’t worry so much about generating alpha. You can’t put a price on saving the planet, right? Just make sure that your money is being put into companies that everyone agrees are sustainable, and make sure you understand what they consider sustainable to be.
Pure-play disruptive tech stocks are not only hard to find, but investing in them is risky business. That's why we created “The Nanalyze Disruptive Tech Portfolio Report,” which lists 20 disruptive tech stocks we love so much we’ve invested in them ourselves. Find out which tech stocks we love, like, and avoid in this special report, now available for all Nanalyze Premium annual subscribers.