When most people think of investment products, they think of stocks, bonds, and mutual funds they can buy from a stock broker. For people interested in the green economy, it is crucial to understand that these “retail” products represent only a small fragment of the range of investment types.
This chart shows the full range of equity type investment products that match the stage of development of a green business, or most any business for that matter:
|
Stage
|
Risk to Investor
|
Potential for Financial Gain
|
Potential to Change Paradigm
|
Available to General Public
|
| Seed |
Extremely High |
Extremely
High |
Extremely High |
No |
| Expansion |
Very High |
Very High |
Very High |
No |
| IPO |
High |
High |
High |
Limited Access |
| Public Stock |
Moderate |
Moderate |
Moderate |
Yes |
| Mutual Fund |
Lowest |
Lowest |
Lowest |
Yes |
More and more people are interested in green investing for its potential to shift today’s environmentally destructive paradigms, and to produce the kinds of enormous gains possible in a rapidly expanding new sector. However, as you can see, the earliest-stage investments most likely to create this paradigm shift and produce super-sized profits also hold the most financial risk. Or do they?
When financial risk is defined in conventional terms, early stage investing is indeed too risky for most people. Those of us who think environmentally, however, tend to consider a wider range of risks. To us, destruction of the biosphere is a risk that makes traditional financial risk seem small by comparison.
Yet, in our daily actions, we are also bound by today’s societal norms. Try as we may, we continue to adhere to “the system” in one way or another. Most of us can’t afford to risk our financial status in society to invest for a better future. This has left the field of funding green startups to a small group of super-rich venture capital investors (see article from Jul-Aug Fast Company). Unfortunately, as wealthy as they are, the combined assets of these new “green angels” are quite small compared to the billions and billions of investment dollars needed to address today’s most pressing challenges in a timely fashion.
What is the answer?
Fortunately, there are many ways to reduce the risk of early-stage green investing to make it more suitable for the vast numbers of potential green-minded investors in the general market. This opens the possibility of mobilizing far more money for early-stage environmental business strategies. U.S. green consumers alone control an estimated $2 trillion to $4 trillion of investment assets. A lot of that can be brought into play if the public can be presented with properly-designed, early-stage green investment products.
Unfortunately, thanks to financial laws designed to make markets safe for average investors, creating these mass-market early-stage green investment products is a complex and expensive process. Today, no such investment products exist in the marketplace. Earlier this year, Iron Leaf Capital canceled their initial public offering after spending nearly $1 million to develop what would have been the first green start-up fund for the general public.
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10
Jun 08
ROI of Green Investing, Part 1
Green investors often refer to the “triple bottom line”:
The first Socially Responsible Investment (SRI) funds avoided companies that made cigarettes, supplied the military, or did business in South Africa. This new approach was called “negative screening”. Later on, SRI investment companies started including environmental screens.
The next logical step beyond negative screens is to assess the proactive “good” being accomplished by the company in which one is investing. What result is the company being responsible for?
Some green investors suggest selecting companies that will “make a lot of money” against the backdrop of climate change or other major issues. While this is a first step, something more is needed. I propose a new approach called the “Ecology Benefit Index”.
What makes an investment ecological? The starting point is to focus on ecosystems. To me, the biosphere as a holistic living unit, comprised of subsystems like air, water, land, and energy. For each subsystem, I want to know:
Science has advanced to the point where today, an investment can be rated according to such an “Ecology Benefit Index”. This index can then be used to help investors select companies that can most directly and effectively help protect, restore, and enhance the vitality of people and the biosphere.
Originally posted at GreenOptions.com