Cleantech grows in the investor community

Paul Herman

Investing in cleantech is not necessarily limited to Khosla Ventures, Kleiner Perkins and the venture capital industry’s $8 billion it deployed to cleantech start-ups in 2008. Nor is it limited only to Quercus Trust and high-net-worth early-stage angel investors,or to the U.S. Department of Energy’s $14 billion combined investment in R&D and loan guarantees from the American Recovery and Reinvestment Act.

The cleantech leaders of the coming years might also be staring you right in the face—in your own portfolio of mutual funds, equity indices and individual stocks.

Cleantech innovation & revenue in the S&P 500
While General Electric’s (NYSE: GE) “Ecomagination” campaign started in 2003 as a media-relations initiative, GE generated more than $17 billion of cleantech revenue in 2008—including farms of wind turbines, energy-efficient railroad engines and millions of compact fluorescent light bulbs—composing nearly 10 percent of its revenue. GE’s earnings are strong in these segments (while the financial services unit’s risks and liabilities weigh it down).

Honeywell Inernational's (NYSE: HON) CEO claims that almost 50 percent of its product portfolio can drive higher energy efficiency, and that the global economy could operate on 10 percent – 25 percent less energy by using today’s existing Honeywell technologies, such as those within its second-generation biomass, wireless sensor and industrial retrofit markets. Honeywell doesn’t yet call out this revenue like GE, but it could.

In sector after sector of the S&P 500, innovative products are contributing to top-line revenues and cleantech benefits:

In Materials, PerkinElmer’s (NYSE: PKI)  suite of sensor products (in industrial, auto and safety) reportedly annually reduce 22 million tons of carbon emissions; Allegheny’s grain-oriented electrical steel (“GOES”) is used in lightweight and eco-efficient equipment, saving energy and emissions, and Ball’s award-winning 100 percent recyclable, lower-weight-than-glass wine bottle that uses both product and process innovations to drop the overall footprint and cost over its lifecycle. 

In InfoTech, Juniper Network Inc.'s (Nasdaq: JNPR) new routers save 30 percent energy and half the data-center space, and Tellabs 5500 digital cross-connects drop energy usage 85 percent. Even in Healthcare, Hospira Inc.’s (NYSE: HSP) VisIV new IV solution container results in 40 percent – 70 percent less waste than similar products

In the Consumer Discretionary sector, $6 billion media company McGraw Hill (NYSE: MHP) is expanding its industry coverage of energy commodities price assessments in Platts with updates about emerging emissions, biofuels and liquid natural gas markets. In the company's construction industry media, product information, market trends and forecasts incorporate details on green and sustainable building projects.

Environmental metrics drive efficiency profits
Operationally, S&P 500 firms are adapting their manufacturing, transportation and supply chain approaches to benefit from cleantech innovations (which help to drive costs down and build demand for higher eco-efficient equipment and services too).
Wal-Mart has committed to three dramatic goals:100 percent renewable energy, zero waste and more sustainable products on shelves for customers. 

This pledge is now translated into a scorecard, rolling out across its 60,000-plus suppliers, to measure carbon footprints, water and natural resources usage and reduced waste, as well as social impact metrics. So who are today’s leaders in these environmental metrics? 

In renewable energy, International Paper Co. (NYSE: IP) obtains 61percent of its energy from biorenewable fuels. Waste Management’s (NYSE: WMI) renewable energy projects save 8 million barrels of oil per year, equivalent to at least $400 million at $50 per barrel.

In natural resources efficiency, healthcare leader Abbott Laboratories (NYSE: ABT) has decreased water usage per revenue dollar by 21% in one year. Walt Disney (NYSE: DIS) reclaims wastewater for reuse across its resorts that save $2 million yearly. 

For carbon efficiency (CO2 equivalent), more than half of S&P 500 firms still do not report their quantifiable emissions data to the Carbon Disclosure Project. But defense contractor Raytheon, which not only reports to CDP, in 2007 emitted fewer greenhouse gases (GHG) per employee than GE, United Parcel Service (NYSE: UPS) or United Technologies Corp. (NYSE: UTX) (though the mix of businesses is different among these firms). And energy producer AEP has installed pollution control (nitrogen oxide and sulfur dioxide) equipment on 3,500 megawatts to reduce its future liabilities.

In waste reduction, Caterpillar (NYSE: CAT) has dropped its waste volume per revenue dollar by 16 percent over the past two reported years. Hewlett-Packard (NYSE: HP) annually recovers one billion pounds of e-waste and diverts 88 percent of landfill waste to reuse or selling to recyclers.

These energy, water, carbon and waste metrics are not yet systematically tracked by all firms (including early-stage cleantech ventures). Those that do tend to have disciplined management practices, systematic scorecard metrics and links to financial valuations that drive profit and shareholder value higher.

Everyday investors can position for cleantech upside
S&P 500 firms are growing top-line revenue and managing bottom-line profit through cleantech. In addition to the innovative products and operational eco-metrics we’ve reviewed so far, innovators such as Interface Inc. have cumulatively saved $400 million from its cleantech initiatives.

Forward-looking firms such as DuPont are using new metrics such as “shareholder value added per pound of product” as shared in Dan Esty’s book Green To Gold. But the top 10 global energy firms including ExxonMobil (NYSE:XOM ), Shell and BP, whose capital spending totals $139 billion (approximately the net worth of Bill Gates, Carlos Slim and Warren Buffett), are still investing less than 5 percent on renewables and clean energy forward-looking capital spending—a clear risk to their share prices and a sustainable future.

You might consider applying these quantitative insights to your portfolio. For investors seeking a public-equity cleantech approach, Portfolio 21’s mutual fund of 30-ish firms historically tends to beat the market in both up and down cycles since 2003. Powershares Cleantech (PZD) and Water (PHO) exchange-traded funds are based on indices positioning to do the same in the coming decades. Our HIP 100 Index incorporates the metrics above for companies in all sectors, encouraging both diversification and eco-efficiency. The HIP Index analyzes not just clean-tech focused ventures, but cleantech as an element of every enterprise—and how it connects to revenue, profit and shareholder value.

You may not be able to invest in early-stage cleantech such as Vinod Khosla or Energy Secretary Steve Chu. However, you can have a diversified portfolio that benefits from cleantech innovations at lower risk by examining what’s already there. Cleantech is an element of every S&P 500 firm. Weighing your portfolio towards firms valuing cleantech revenue and profit opportunities may help rebuild your retirement savings, reward well-managed leading brands, and help save the air, land, water and livability to maintain a healthy planet.

R. Paul Herman is CEO+ Founder of HIP Investor Inc., the inventor of the HIP (Human Impact + Profit) Scorecard and HIP 100 Index; learn more about cleantech and sustainable investing at www.HIPinvestor.com.