Dec. 10, 2019, 11:03 a.m. EST

How does going green boost stock prices and attract investors?

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Dec 10, 2019 (Investing Alerts) -- Approximately one decade ago, recycling, waste reduction and other environmentally-conscious concerns were merely a niche, although there were many studies at the time which showed that the planet is headed in a dangerous direction. Now, going green has become one of the top concerns, starting from government initiatives down to an individual level and this is reflected in the business world too.

Previously thought to be cost-prohibitive, going green is now not only a way to stay relevant in an increasingly eco-aware market, but also a way to boost profits . To add to that, bodies such as the EU are constantly raising recycling and waste reduction targets, and business activity plays an important role in reaching goals, otherwise they risk fines. In 2020, clean businesses are expected to grow their influence on the market and gain considerable revenue while doing so.

Investors have been some of the first to respond to this paradigm shift and this can be seen from the rise of two major trends:

  • The growth of the investment rate in green sectors. According to the United Nations Environment Programme (UNEP), these green sectors can be classified into seven categories: wind, solar, biofuels, biomass, small hydro, geothermal, and marine. At the end of 2018, green sectors had reached a record $279.8 billion in new investments and this number is expected to grow in the following five years. Bloomberg data places the Asia-Pacific region as the leader in green investments, totalling $40 billion. Out of the seven green sectors, solar and wind report the highest investment rates and they are projected to grow by 18% by 2035 according to a forecast by Wood Mackenzie, which is a much faster growth rate compared to oil (14%) or coal (7%). In 2019, the clean energy stocks that stood out the most include Brookfield Renewable Partners /zigman2/quotes/203824572/composite BEP +4.35% , TerraForm Power /zigman2/quotes/205933696/composite TERP +4.42% , and NextEra Energy /zigman2/quotes/200558509/composite NEE +5.78% . As far as alternative investments go, electric vehicles offer the most lucrative opportunities, the most notable stocks here including General Motors, Ford, Sempra, and Tesla.

  • The growth of the investment rate in businesses that have environmentally sustainable practices. Even if a company doesn't activate in a green sector per se, it can still attract investor interest by changing its mission statement and switching to environmentally responsible practices. This includes things such as manufacturing some or part of their products with recycled materials, creating products that can be reused or recycled, reducing the amount of waste they send to landfill, sourcing raw materials from ethical sources, and using production processes that don't pollute.

New research shows that going green not only draws investors' interest but also increases the stock price of publicly listed companies. In a study published in the National Bureau of Economic Research, researchers from the University of Zurich concluded that that firms rated higher for climate responsibility were associated with higher returns after Donald Trump's presidential mandate. Environmental regulations are weaker now, but, for the near future, investors expect a boomerang effect where the demand for climate-responsible stocks will rise as a result of more stringent policies.

Landfills are the biggest contributor to pollution on the planet but 80% of the waste sent to landfill can actually be recycled. Businesses that change their practices and reduce the amount of waste sent to landfill have much to gain, not only in terms of customer perception but also in financial terms. More and more countries have increased the cost of sending waste to landfill, so there are financial incentives for responsible waste disposal. What used to be called "trash" can even turn into a profitable business opportunity by monetizing your waste . In the long run, reusing materials and calling for fewer pickups saves time, money, and space, and increases workplace health.

According to the Waste and Resources Action Programme in the UK, office-based businesses could save as much as �1,000 per employee by cutting down on the number of raw materials used in production processes.

Further benefits can be gained by thinking outside the box and collaborating with other companies or environmental organisations to tackle the problem at a larger scale. For example, when Adidas worked with Parley for Oceans to manufacture 7,000 limited edition sneakers completely from plastic trash retrieved from the ocean, all the products sold out almost immediately. By doing so, not only did Adidas prevent 2,810 tons of plastic from reaching the oceans, but also made billions in the process.

In the following years, businesses will interact more with what has been called the "sustainable mainstream customer". With awareness on environment issues reaching an all-time high, customers are becoming more informed on the issue and they are willing to change providers because it's the right thing to do for the planet.

In 2014, Nielsen reported that 55% of consumers were concerned about the planet and they were prepared to pay more for sustainable products and services. In 2018, a follow-up Nielsen study consolidated these findings , highlighting that sustainable products typically had a better evolution on the market. Another international study confirmed that 80% of consumers respect ethical business models. In addition, customers know that, apart from their individual efforts to help the planet, industrial processes and the business sector are the biggest contributors to pollution and this is where large-scale changes should come from.

Switching to green practices can do more than just save businesses money. It can also boost productivity, attract investors, increase profit, and consolidate their business reputation. In most cases, business owners don't have to wait for years to see these benefits because lowering the carbon footprint brings almost instant positive cash flow results.

COMTEX_359093721/2626/2019-12-10T11:03:21

/zigman2/quotes/203824572/composite
US : U.S.: NYSE
$ 46.76
+1.95 +4.35%
Volume: 105,197
April 9, 2020 10:46a
P/E Ratio
N/A
Dividend Yield
4.68%
Market Cap
$13.83 billion
Rev. per Employee
$1.29M
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/zigman2/quotes/205933696/composite
US : U.S.: Nasdaq
$ 17.49
+0.74 +4.42%
Volume: 173,557
April 9, 2020 10:47a
P/E Ratio
N/A
Dividend Yield
4.65%
Market Cap
$3.79 billion
Rev. per Employee
$4.56M
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/zigman2/quotes/200558509/composite
US : U.S.: NYSE
$ 247.00
+13.50 +5.78%
Volume: 1.33M
April 9, 2020 10:47a
P/E Ratio
31.77
Dividend Yield
2.27%
Market Cap
$114.28 billion
Rev. per Employee
$1.15M
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