David Jackson The Green Investor

Who isn't thinking about the environment these days?

The Live Earth global series of concerts, the hit documentary film "An Inconvenient Truth," and the selection of Al Gore and the Intergovernmental Panel on Climate Change for the 2007 Nobel Peace Prize have pushed environmental concerns to the forefront of political and social agendas.

As a result, environmentalism has gone mainstream, and interest in "green investing" is exploding. Many of us want to invest in ethical companies, and avoid companies that are destroying our environment. We also realize that the shift to greater environmental responsibility will be a big business -- some stocks will be big winners, some will be big losers.

Green into Green

The goal of this column is to filter out the hype and provide clear, independent, and useful information for green investors. Among others, I'll address the following questions:

• Which alternative energy companies are currently prospering or likely to prosper in the near future? Are their stock prices realistic?

• Which companies aren't usually thought of as "green," but will benefit from the shift to greater environmental responsibility?

• Which publicly traded stocks could be the biggest losers from the shift to energy efficiency and higher oil prices?

• Which multinational corporations are making legitimate and successful efforts at environmental responsibility while continuing to grow their bottom lines?

• Which ETFs are most attractive for green investors?

Bottom line: I'll explore how to turn green into green.

Two Reasons for Green Investing

Investors committed to the green-energy theme tend to fall into one or both of two camps: Those whose personal ideals lead them to invest in socially responsible ventures; and those who seek the next big growth industry to fuel portfolio gains.

While all investors want their money to make money, some place social consciousness on the same plane. They want to make sure their profit isn't at the expense of others, and would prefer to have their investments make the world a greener and cleaner place. These investors can be sure that they're not harming the environment, and in the case of alternative energy, their money can actually improve it.

Others invest in alternative energy because of the industry's high potential for growth. For these investors, helping the environment is nice, but making money is the priority. As oil resources become scarcer and prices rise, and as governments enforce stricter environmental policies, alternative energy companies are showing promise -- and savvy investors are taking notice.

Alternative Energy, Extraordinary Numbers

Alternative energy companies are on course to raise $13.7 billion on the public markets this year, 32 percent more than last year, according to data provider New Energy Finance. Demand for socially responsible investments far exceeds the supply of equity issues by renewable energy companies so far, but there are other options when looking to invest:

• No less than nine ETFs focusing on alternative energy have sprung up recently. More than 50 "clean tech" companies issued IPOs in the last 24 months, and $13.7 billion of new money is expected to be raised on the public markets this year alone -- 31.7 percent more than last year.

• Leading venture capital and private equity funds are pouring billions of dollars into green investments and are predicted to reach $8.8 billion this year, an increase of 31.3 percent over 2006.

• Total new investment in alternative energy is expected to grow more than 25 percent in 2007 to $94.5 billion, while the International Energy Agency predicts $1 trillion will be invested in renewable energy sources, excluding hydroelectric dams, by 2030.

What is a Green Company?

A green company is not only defined by the production of alternative energy, be it solar, ethanol, wind, or gas. Greenness is also dependent on a company's policies toward the environment, such as its emissions levels, energy use, waste production, compliance with Forest Stewardship Council standards, water minimization, management systems, and improvements related to climate change.

Companies like Coca-Cola look good under these criteria, but produce products that may rot teeth and create non-biodegradable waste. On the other hand, companies like eBay perform less well based on these indicators, but provide a forum for people to sell things they no longer want instead of throwing them out, thus decreasing waste.

One could also decide which stocks are "green" by their environmental expenditures. The U.S. oil and natural gas industry has invested more than $148 billion since 1990 on improving environmental performance. In 2005 alone it spent $10.7 billion on implementing new technologies, creating cleaner fuels, and funding environmental initiatives. It spent an additional $1.7 billion on research and development, corporate environmental programs, and spill remediation efforts.

We know that "alt energy" companies are producing products that will help Mother Earth. On the other hand, we have no idea what these companies do to the environment in the process of creating products whose function is environmentally positive. But in the end, alt energy companies and oil companies have the same goal: to make money.

Which Green Stocks Are Viable?

Outside of the concerns for social responsibility, investors have identified the huge emerging market in alternative energy, but fear repeating the dotcom bubble of the late 1990s.

Shares of many publicly traded ethanol companies, such as Pacific Ethanol and Aventine Renewable Energy Holdings, which looked promising in 2006, sank over the past year amid a glut in the fuel (which has reduced ethanol prices) and a run-up in corn prices (which has increased costs). Alternatively, companies like First Solar have seen their stock rise over 600 percent in 2007.

Other investors see permanence in clean technology, insisting that these green companies are creating essential products, particularly as oil prices rise. As a sector, though, alternative energy stocks have also not demonstrated a clear trend.

Figuring out how to invest in other sectors while being environmentally conscious is equally difficult. Obtaining information about companies' environmental policies is a challenge. Unlike financial data, which are readily available all over the Internet, reliable environmental data are not easy to find.

The purpose of this column is to provide clear and useful information on which companies in the alt energy space are prospering or likely to prosper, as well as occasionally looking at which companies in the mainstream are making serious and successful efforts at being green.