Cleantech: The Next Big Thing in your Stock Portfolio

Long term, stable returns are a hedge against volatile markets. Even BlackRock thinks so.

The last technology revolution – IT and the Internet – focused investors in companies that expected to make very large returns in a short time: 2-3 years. Silicon Valley Venture Capitalists bet that a small number would become ‘unicorns’, compensating for the failure of the rest. The question is, does this type of investing promote long term, stable growth? As the stock market has been rocked recently by volatility expected in tantrums from three year olds, the need for more stable, predictable companies has become a concern. As Larry Fink, BlackRock (link is external)'s Chairman and CEO, noted in his most recent letter to CEOs (link is external), sustainable growth is in everyone's interest.

As BlackRock approaches its 30th anniversary this year, I have had the opportunity to reflect on the most pressing issues facing investors today and how BlackRock must adapt to serve our clients more effectively. ... As a fiduciary, BlackRock engages with companies (link is external) to drive the sustainable, long-term growth that our clients need to meet their goals.

As popular internet applications, social media and hardware features come and go, their impact on our economy also fluctuates. Sites such as Facebook, which is dependent on advertisers for income, are increasingly struggling with a model that can put their users at risk to keep revenues flowing. Apple now has less than 25% of the tablet market it invented.  In contrast, cleantech focuses on essential needs for clean air and drinkable water, fresh food, efficient and clean energy, and transportation that meet the needs of today’s workers. William Liuzza, CEO of Energeiaworks (link is external), a company that helps hire corporate talent, noted that Cleantech 1.0 is growing clean energy jobs at 12x other industries. Cleantech 2.0 – the expansion of storage, blockchain and other data technologies that increase efficiency – is expected to produce even more jobs.

Julie Shafer, Head of Strategic Partnerships & Purpose Investing, Family Wealth Advisors/Bank of the West (link is external), added that some $30 trillion from Baby Boomers will be transferred to Millennials.This is espeically important because individuals continue to be the largest contributor to philanthropies. Around 1/3rd are expected to leave their current advisor, looking for new firms that align with their concerns and interests. As a result, many advisors are divesting from stocks such as fossil fuels and tobacco, trending toward investing in companies that are sustainable, or are taking steps to manage the risk and engage in the opportunities of climate change.

Njeri Mathu, a sustainability expert and CEO of AnaCheza (link is external) supported Ms. Shafer’s comments, adding that 73% of millennials are willing to pay a bit more for sustainable products, and 62% are willing to take a pay cut to work for such companies.

As to where they will invest, the US is still a great place to invest, according to Peter Fusaro, the founder of Global Change Associates (link is external). He sees the US continuing to be a great place for investors due to the rule of law which protects contracts in the largest global market in the world. He echoes Mr. Liuzza's comments, that cleantech is providing many more jobs than any other sector, as well as supporting the kind of innovation that continues to draw investments to the US.

Kristen Sullivan, a Partner, Deloitte & Touche LLP (link is external) added that consumers – including corporate buyers – have become more concerned with sustainability. This demand has lead to better ways of reporting on key metrics that influence buyers. Ms. Sullivan noted that rating agencies increasingly acknowledge ESG (Environmental, Social, and Governance) as foundational indicators, corporations must take control of that conversation. Again, Mr. Fink agrees, adding in his letter:

[A] company’s ability to manage environmental, social, and governance matters demonstrates the leadership and good governance that is so essential to sustainable growth, which is why we are increasingly integrating these issues into our investment process.

Thomas Byrne, the CEO of CleanCapital (link is external) added that rating agencies are finally catching up. Long a bottle neck as they sought to understand how to value new asset classes, they are becoming sophistiactaed in the different types of local renewable installations by homeowners and businesses. This increased knowledges means they can take into account a predictable cash flow as well as the good credit of the parties, including off-takers, installers and owners. While the market for utility scale is still easier to fund than distributed, that is beginning to shift as data becomes available and groups, such as the US NREL (link is external)(National Renewable Energy Lab) develops standardized language for contracts and transparent metrics.

Supporting the change to carbon reduced economy, Chris Fry from the New York Power Authority (link is external) believes that a carbon charge, albeit carbon pricing or tax, could help reduce volatility in long term strategies that encourage renewables and energy efficiency. As all utilities work to encourage less intensive carbon strategies, they can be hindered by the fluctuations in energy prices that affect RECs (Renewable Energy Credits) and PPAs (Power Purchase Agreements), virtual PPAs and pre-paid PPAs.

Jessica Copeland of Hodgson Russ LLP, noted that grid stabilization is key to managing huge shifts in how electricity is used. By 2020, as much as 50% of automobiles could be electric. Since cars are routinely driven for a few hours a day, smart tech can manage plugged in vehicle’s battery storage, drawing when energy is needed by the grid, and filling up when energy is low cost. Some owners will use their cars to manage their solar output, selling back to the grid when demand is high.

Finally, whole cities are going solar, according to Donna Sanders, Co-Founder & CEO, Social Solar. (link is external) Community solar, which allows multiple entities to own a percent of a multi megawatt installation, is growing.  Customers only buy what they can use, but an ‘anchor’ owner – a large organization – tends to own up to 40% of the output. Currently a $20 billion industry, it is expected to continue to grow 20% year over year.

In an economy that shifted in the early part of this century increasingly toward maximizing shareholder value, thinking about how an economy -- and the decisions that CEOs and others make -- has the power to address the quality of life of all our communities.  To quote Mr. Fink one last time:

We also see many governments failing to prepare for the future, on issues ranging from retirement and infrastructure to automation and worker retraining. As a result, society increasingly is turning to the private sector and asking that companies respond to broader societal challenges. Indeed, the public expectations of your company have never been greater. Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.

This article is written with thanks to the Wall Street Green Summit, hosted by Peter Fusaro's Global Change Associates. This event brings the scope and benefits of cleantech investing to those who are both inside and outside of the industries served.