Taking social responsibility to market

We live in an age of innovation. Many investors would like to increase the number of socially responsible companies brought to market, not just for investment opportunities, but as a way to get emerging technology and innovative business models more recognition.

History has repeatedly taught us that small, emerging companies — when given the proper encouragement — may pioneer the advancements necessary to drive real and positive cultural change. However, small businesses often must overcome limited recognition or the challenge of supplanting established technology. With the proper financing and long-term support, small businesses can make a big impact on our environment and our communities.

A growing cause
The tremendous growth of socially responsible investing (SRI) demonstrates that investors are demanding the opportunity to invest in corporations deemed ethical and accountable. SRI assets increased more than 250 percent in the last 10 years, according to a 2005 study from the Social Investment Forum, a national association dedicated to promoting socially responsible investing. Total SRI assets grew from $639 billion in 1995 to $2.29 trillion in 2005 — a huge shift, considering total assets invested under socially responsible directives netted only $40 billion in 1984, the year of the forum’s first industry-wide assessment.

More than a passing trend, SRI growth indicates a transition to a responsibility-driven market. Investors understand that social and environmental issues cannot be isolated from corporate growth and profitability, but are instead critical factors for the long-term sustainability of the global economy.

Connecting investors with opportunity
When early-stage, small or regional socially responsible companies seek funding, they must find an investment firm willing to assume the unique risks associated with SRI. Reviewing a firm’s track record can indicate whether it truly understands the intricacies of SRI, or whether it is simply dabbling in what it perceives as the latest politically favorable industry.

An investment firm with a history of fostering socially responsible businesses should have a client base that values such investment options, despite the unique risks. Socially responsible companies may require a longer period to mature and reach full market potential. Product development issues, a need to educate the marketplace on product benefits and the process of convincing investors of the benefits and longterm value propositions are all challenges. The key to success is finding investors who are committed to the missions of socially responsible companies. Like all financiers, investment banks must be perceptive enough to recognize winning opportunities. As the facilitator between the company and the investor, the investment bank typically makes an investment decision long before there is significant data available on a company’s products. The key is determining whether the next smart idea can be managed and executed effectively.

The expertise of an investment bank helps dictate which business models typically succeed. Extensive research qualifies and supports investment decisions, mitigating unnecessary risk. Primary factors, such as the experience and commitment of the management team, the ability to raise capital and the competitive potential for the product or service in question, should be considered.

Capitalizing on energy trends
With oil and gas prices remaining high and the theory of climate change becoming increasingly accepted, companies specializing in alternative energy technologies have been successful in attracting investments and generating revenue growth. The combined revenues for companies within the biofuel, wind power, solar power and fuel cell markets climbed to $55 billion in 2006, up from $40 billion in 2005, according to “2007 Clean Energy Trends Report,” a report released by Clean Edge, a research and publishing firm focused on promoting profit from clean technologies. Further forecasts place these four markets on a trajectory to reach a collective $226 billion by 2016.

Ascent Solar Technologies (Nasdaq: ASTI), of Littleton, Colo., is an example of a company that has made great strides since going public in 2006. The company develops super-thin, flexible solar cell technology that can fulfill a host of applications, from residential and commercial to space and near space. In addition to winning development contracts with the U.S. military, Ascent also attracted a considerable investment from Norsk Hydro, a Fortune 500 energy and aluminum supplier. These and other positive business developments have resulted in stock appreciation, as well as greater potential for Ascent to showcase its environmentally friendly energy technology.

While the alternative energy industry is certainly attractive, other sustainable businesses have presented compelling investment opportunities. Converted Organics Inc., a Bostonbased development-stage company with strong growth potential, uses heat and bacteria to convert organic food waste into environmentally-friendly fertilizer for agribusiness, turf management and retail markets. From its raw materials to its final product, Converted Organics makes a conscious effort to create a competitive product with minimal environmental impact.

Creating change through SRI
Investors have an opportunity to create change by devoting their dollars to businesses with social and environmental goals. Identifying, nurturing and supporting those companies through SRI can provide enrichment that extends beyond a portfolio’s monetary value. These small and emerging companies may just have the capabilities to address critical environmental and social issues.

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Chester L.F. Paulson is chairman of Portland-based Paulson Investment Company Inc., a 37 year-old Portland-based investment bank specializing in SRI that has acted as the lead underwriter for approximately 160 offerings, raising more than $1 billion for its clients.