Green Investing ™
Past, Present, & Future
Jack Robinson
Yale Club Thought Leaders in Business @ The Yale Club of New York
June 28th, 2012
The Have More Plan
Garden Way, Inc.
TROY-BILT TILLER
GARDEN CART
• Tillers, carts, books, greenhouses, woodstoves, etc.
• High margin, 1982: $125 million mail order company
• Most profitable product: re-manufactured tillers
• Responsible company: socially and environmentally
Winslow Management Company
• Green focus: metrics are quantifiable
Negative
Screening
• Negative screen for harmful products/services
• Avoided coal, oil, nuclear, weapons, chemicals
• Eliminated about 40% of S&P 500
Green Investing Since 1983™
Winslow Management Company merged with Brown Advisory in 2009
Green/SRI* Investing: religious roots
Negative
Screening
• 1750’s: “The Use of Money” sermon by Rev. John
Wesley. Gain all you can but not at expense of
life, working conditions, or health (arsenic, lead,
and harmful chemicals)
• 1758: Quakers prohibited slave trade
• Other religions impose dogma related guidelines
• 1977: Sullivan Principles (apartheid)
*Socially Responsible Investing (SRI)
Whole Foods IPO
January, 1992
• Initial response: great skepticism
• Microcap > large cap today: IRR of 20%*
Positive
Screening
• The birth of the natural & organic foods industry
• Organic, Natural and Local food with a focus on
healthy living for customers, community, & team
*Internal Rate of Return (IRR) of 20% for time frame 1992 through Q1 2012
Objectives of Positive Screening
• Reduce Risks
Financial
Metrics
• Lower Costs
• Enhance Revenue Growth
• Branding
Other
• Innovation
• Employee Recruitment and Retention
Green (Sustainable) Investing Today
•Fossil Fuels
•Resource
Scarcity
•Water Quality
•Water Quantity
Clean
Energy
Water
Management
Resource
Efficiency
Positive
Green
Solutions
Environmental
•Pollution Services
•Waste
Sustainable
Living
•Obesity
•Toxins
Green
Building
Products
Green
Transportation
•Emissions
• Inefficient
Buildings
U.S. Buildings: Energy Efficiency Retrofits
• $279 Billion Energy Retrofits
• Estimated Energy Savings over 10 years:
>$1 trillion
• CO2 mitigation 600 mil metric tons/year
(10% total U.S. Emissions)
• 3.3 million new jobs (cumulative) job
years
Source: The Rockefeller Fund & Deutsche Bank Climate Change Advisors, “United States Building Energy Efficiency Retrofits,”
page 7 and figure 1,March 2012
Image Source: Bobby Mikul, http://www.publicdomainpictures.net/view-image.php?image=16166&picture=empire-state-building
Natural & Organic Food Industry
•
•
•
•
$41 billion in 2010
Past 10 Year Growth Rate: 10-12%
Preliminary Estimate of 2011 Growth Rate: 9-10%
(Nutritionals : $26 billion)
“I used to be skeptical of organic, but the more reporting I do on our food
supply, the more I want my family eating organic – just to be safe.”
-Nicholas D. Kristof
Sources: Data points from Canaccord Genuity Analyst Scott Van Winkle
Quote from “Arsenic In Our Chicken?” The New York Times Op-Ed, April 5, 2012.
Pink Slime aka LFTB*
• Bad News
• One known bankruptcy (AFA Foods)
• 75% capacity reduction (Beef Products, Inc.)
• Traditional supermarket chains
• Good News
• Local providers
• Natural & Organic
• Supply chain
*Lean Finely Textured Beef
Sources: John Bussey “Cows: The Innocent Bystanders”, The Wall Street Journal, April 5th 2012.
Image Source: U.S. Department of Agriculture/Public Domain
Annie’s, Inc.
• Natural & Organic Foods
• Current Annual Revenues $125 million (Est.)
• I.P.O. on 3/28/12 @ $19/share for total market
valuation of $323 million
• Market Capitalization 5/31/12: $668 million
Growth Outlook for Natural & Organics?
Image Source: http://www.annies.com/products
Data Source: Annie’s Inc. Preliminary Prospectus, March, 28 2012
Resource Scarcity
“No compound growth is sustainable. If we maintain our
desperate focus on growth, we will run out of everything and
crash. We must substitute qualitative growth for quantitative
growth.”
-Jeremy Grantham1
“A new study from researchers at Jay W. Forrester's institute at
MIT says that the world could suffer from ‘global economic
collapse’ and ‘precipitous population decline’ if people continue to
consume the world's resources at the current pace.”
-Eric Pfeiffer2
Sources: 1.“Time to Wake Up: Days of Abundant Resources and Falling Prices Are over Forever”, GMO, April 2011
2. “Next Great Depression? MIT researchers predict ‘global economic collapse’ by 2030” Yahoo News, April 4, 2012
Schnitzer Steel
• “Fishing for Energy”
• Reclaim and recycle program
• Partners: NOAA, NFWF, Covanta
"This program has made it easy for fishermen to recycle their unusable, heavy
equipment – they don't have to pay or go out of their way. Some have also found
a new source of income in retrieving abandoned gear from the ocean floor.”
-James Banigan, General Manager, Schnitzer Steel Hawaii
Image and Quote Source: Schnitzer Steel Sustainability Website http://www.schnitzersteel.com/values_sustainability_2.aspx
Climate Change
“In 2011, we saw an unrelenting barrage of weather-related
catastrophes all across the country. This resulted in a record number
of homeowner claims – from fire and ice to droughts and floods.”
-Robert A. DiMuccio
Chairman, President and CEO, Amica
Source: DiMuccio. “President’s Message.” Amica 2011 Annual Report.
Image Source: NSSL Tornado Photos from SPC http://www.spc.noaa.gov/faq/tornado/torscans.htm April 10, 1979
“How strongly do you agree with the following statement?
Global warming is affecting the weather in the United States.”
National Average
Strongly agree
26
Somewhat agree
43
Somewhat disagree
19
Strongly disagree
11
• 1,008 adults (18+) surveyed, survey conducted at a 95% confidence level,
• Interview dates March 12, 2012 to March 30, 2012
Source: Leiserowitz, A., Maibach, E., Roser-Renouf, C., & Hmielowski, J. D. (2012) Extreme Weather, Climate & Preparedness in the
American Mind. Yale University and George Mason University. New Haven, CT: Yale Project on Climate Change Communication.
http://environment.yale.edu/climate/files/Extreme-Weather-Climate-Preparedness.pdf
Climate Change: Only Three Options
• Prevention: it’s too late
• Mitigation: not enough, but not too late
• Adaptation: occurring with all or none stakes
“Adaptation at 1 or 2 degrees will be painful, but at 5 or 6 degrees,
it’s catastrophic”
-Steven Chu
Source: Zakaria, Fareed. “In the Great Ship Titanic.” Newsweek, April 20, 2009
“Only a crisis – actual or perceived – produces real change. When
that crisis occurs, the actions that are taken depend on the ideas that
are lying around. That, I believe, is our basic function: to develop
alternatives to existing policies, to keep them alive and available
until the politically impossible becomes politically inevitable.”
-Milton Friedman
Source: Capitalism and Freedom, University of Chicago Press, 1962
Ideas and Alternatives
• Government: broken and broke
• NGO’s*: on task and seeking to enhance influence, but…
• Corporations: must take a leadership position
Capitalism to the rescue?
*Non-governmental organization (NGO)
Low Tech Start-ups
Cleantech Private Equity Investments
Billions
Q1 1995 to Q4 2011
$4.5
323
292
$4.0
289
$3.5
248
Number of Deals
$3.0
229
U.S. Dollars
$2.5
$2.0
152
$1.5
$1.0
51
$0.5
35
48
52
42
55
61
50
81
87
56
$0.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Year
MoneyTree definition of Clean technology: This designation crosses traditional MoneyTree industries and comprises companies that focus on
alternative energy, pollution and recycling, power supplies and conservation.
Data Source:PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters Q1 1995 – Q4 2011
Key Question for CEOs:
Question: What is keeping you awake at night?
Answer: Lack of educated/skilled/talented workers to take
our company to the next level
Is sustainability possible without employee engagement and
the right human resources?
“Lack of Skilled Workers Threat to Growth”
-Alejandra Cancino
Chicago Tribune, February 26, 2012
“Funds to Train Jobless in U.S. Are Drying Up”
-Motoko Rich
The New York Times Headline, April 9, 2012
Source: Reprint in the Providence Journal, March 11th, 2012
HR Education and Training Solutions
• “Colleges to Careers” programs in Chicago:
- Community colleges with corporations
• Northeastern: Co-op model partnering with corporations
• Wharton: - New Program: Business sustainability leadership
cosponsored by SAP AG at San Francisco campus
- Initiative for global environment leadership
• Caterpillar University with > 100 online courses
• Taco, Inc. (Rhode Island): education a core value with onsite college
course program
Sources: Rahm Emanuel, “Chicago’s Plan to Match Education with Jobs,” The Wall Street Journal, December 19, 2011
Caterpillar University Website < https://www.caterpillaruniversity.com/> January 17th, 2012
Safety a Core Value?
Clean Harbors TRIR*
3.5
3.0
3.1
2.8
2.5
2.4
2.0
2.5
2.2
■ - Actual
■ - Goals
2.2
1.5
1.7
1.0
1.0
0.5
0.5
0.0
2005
2006
2007
2008
2009
2010
2011
-
-
-
*Total Recordable Incident Rate (TRIR)
“A new $70 million RFP rests on our safety record”
-NYSE CEO, Fall 2011
How can you be sustainable if you are not safe?
Data Source for Chart: Clean Harbors 2011 Annual Report, p 3, February 29, 2012
Alcoa’s Approach to Sustainability
“Sustainability is not a catalog of processes, nor merely a philosophy
at Alcoa. Rather, it is part of everything we do.”
-Klaus Kleinfeld
Alcoa Chairman and CEO
Source: Alcoa Sustainability, “2011 Sustainability at a Glance” Accessed June 25, 2012
Clicksoftware
Source chain & mobile field force management & optimization
Sustainability
•
•
•
•
•
•
Scheduling efficiencies
Reduce fleet mileage
Same set optimization
Reduce wear & tear (people & equipment)
Increase preventive maintenance visits
Travel savings
SAP AG
“Software a critical component of sustainable solutions for our
customers…and for a sustainable world
Our corporate strategy is sustainable…as sustainability embedded in
everything we do including for example diversity and CO2 emissions
90% of SAP AG employees say sustainability is important to team and
should be important to company
Employee engagement is absolutely critical for sustainability to work”
-Rami Branitsky
Senior Vice President of SAP AG
Source: Eric Orts “Podcast: An Interconnected Wed: How Sustainability Relates to SAP’s Corporate Strategy” Wharton School of Business
Unilever
CEO’s three sustainability goals by 20201:
• “Halve the environmental footprint of our products”
• “Help more than 1 billion people take action to improve their
well being”
• “Source 100% of our agricultural raw materials sustainably”
Transparency +:
• All ingredients, all products sold in Europe
• Example: Dove intensive beauty body butter, 48 ingredients
listed
Sustainability Includes Transparency
Source: 1. Paul Polman, “Message From Our CEO”, Unilever Global Website http://www.unilever.com/sustainableliving/ourapproach/messageceo/ accessed June 13, 2012
Sustainability and Risk
“The reality is that businesses of all sizes and types are facing
unprecedented risk and volatility, for which sustainability strategy is
a direct, timely, and effective countermeasure…
Sustainability is fundamentally good governance – astute and
prudent management of complex, multifaceted risk.”
-Felice Kincannon and Julianne Zimmerman
Source: Kincannon, Zimmerman. “Reframing the Sustainability Conversation to Risk and Resilience”. environmentalleader.com,
October 10, 2011.
“Sustainability Nears a Tipping Point”
Sources: MIT Sloan Management Review and The Boston Consulting Group “Sustainability Nears a Tipping Point”. Winter 2012, Vol.
53, no.2, 69-74 .
Sustainability Making a Difference at Nike
• Stifel Nicolaus, June 1st sell-side report, “Innovation, Supply Chain
and Sustainability Gains make NIKE Tough Act to Follow”
• Benefits of sustainability identified:
• Lowers energy costs, reduces waste, reduces worker turnover,
improves productivity, decreases dependence on increasingly
scarce resources, consolidates factory list, improves product
quality, insures long-term access to sustainable materials,
community reinvestment positively impacts brand
• Benefit of near-sourcing identified:
• Savings on transport, and duties, and shorter lead time
Source: Duffy, Jim, Eric Alexander, Molly Iarocci, and Stifel Nicolaus.“Company Update: Nike, Inc.” June 1st, 2012.
Stifel Nicolaus.
Does Corporate Sustainability
Favorable Stock Performance?
HBS Working Paper: November 2011
% High Sustainability vs. % Low Sustainability (traditional) Companies
• Other characteristics (size, ROA, ROE, leverage, inventory
turnover, etc.) very similar
• 18 years of composite performance
• Sustainability: coherent set of policies related to environment,
employees, community, product, and customers
Incremental average annual return?
4.8%
Source: Robert Eccles, Ioannis Ioannou, George Serafeim “The Impact of a Corporate Culture of Sustainability on Corporate
Behavior and Performance” Working Paper #12-035. Harvard Business School. May 9, 2012
Your thoughts?