Belt Up For Green Bandwagon Ride

Foreword from ShareInvestor

This article “Belt Up For Green Bandwagon Ride” by Serene Cheong was first published in The Business Times on 7 Apr 2008 and is reproduced in this blog in its entirety.

In a follow-up to last week’s introduction to the types of investing opportunities available in the green industry, Serene Cheong speaks to investors about their views on such investments, with a specific focus on the green energy sector

From floods and snowstorms in Asia to hurricanes in America, people the world over are feeling the heat of global warming.

According to the United Nations Intergovernmental Panel on Climate Change 2007 report, the global average temperature has increase 0.74 deg C in the past 100 years, which will lead to an 18-59 cm rise in sea levels by the end of this century.

What does this mean? The loss of agricultural land, a decline in food supplies and an irreversible impact on earth’s plant and animal biodiversity.

Apparently, humanity’s unsustainable lifestyle is leading it down a slippery path to self-destruction.

Recently, there has been greater awareness of changing to a more sustainable lifestyle while maintaining economic growth in Singapore. But what effect has this had on people’s financial choices?

Popularity Of Green Investments

From private equity to funds and trusts, Singaporeans are spoilt for choice when it comes to green investment opportunities.

But former university lecturer and green writer Thusida De Silva reckons the pick-up rate for green investments is slow in Singapore. He blames the general lack of interest on people’s unwillingness to forego creature comforts.

“We are a consumer society without conscience partly because our whole set-up is geared towards economic growth,” says Mr De Silva. “These days there’s some talk from the government about sustainable economic growth, but it is focused on headline numbers that do not gel with sustainability.”

Conversely, Daniel Lim, a private investor in green businesses and an accountancy undergraduate from Singapore Management University, thinks otherwise.

“I believe Singaporeans will sit up and take notice of green initiatives and investments when they realise how seriously the government is viewing the sector’s development,” he says.

So he is optimistic that Singaporeans will follow the government’s lead and quickly become more receptive to the idea of green businesses, citing the launch of the Energy Studies Institute by Trade and Industry Minister Lim Hng Kiang in November 2007.

The institute is South-east Asia’s first energy think tank that focuses on the R&D of regional energy policies.

Eco-Friendly, But At What Cost?

Despite the merits of investing in a “good cause”, it is crucial to keep in mind Warren Buffett’s golden rules on investing.

Rule 1: Never lose money. Rule 2: Never forget rule number one.

“If an investor is unfamiliar with the green industry or a particular company, I suggest they stay away and not jump on to the bandwagon,” says Daniel. “Invest only in what you understand – you sleep better that way.”

Besides having a good grasp of the firm and industry, investors also need to equip themselves with an overview of the global financial situation, says Tow Wee Cheong, who works in the trading arm of an oil major.

“People should not follow trends blindly or be swayed by all the hype about green businesses,” he says. “With the current market outlook of high global inflation and diminishing US growth, I am bearish about the global stock market and I don’t think it is wise to invest in green energy equities now.”

“The overall reduction in global oil demand due to speculation of an American recession could also prevent oil prices from hitting new highs, thereby diminishing the prospects and viability of green energy.”

‘Clean-Energising’ Your Portfolio

On the whole, people seem to agree that green investment have immense long-term potential. But not everyone is keen to invest in green business yet because of factors like low productivity and cost efficiency.

Mr De Silva says that he will “most definitely” place money in green investments but points out that one has to be patient to reap a profit.

“The more astute investors started investing in green companies or companies with environmentally-friendly operations years ago,” he says. “But it’s probably not too late to invest in them now for two main reasons.”

“First, growing energy use will drive their earnings and share prices. And second, we will reach a stage where a shift to clean energy is inevitable, so if you are already positioned in clean energy stocks, you are doing well from an investment perspective.”

SMU’s Daniel agrees, and is convinced that green energy could turn out to be the next societal-changing technology after the Internet.

He believes that local awareness of green investments will increase, with more green investments will increase, with more green companies seeking to launch initial public offerings in Singapore – following the lead of German solar thin-film panel manufacturing firm SolarTec.

“It’s definitely foolish to ignore them (green firms) because of the potential these individual technologies have,” he says. “I am very excited about jatropha oil and solar as alternative energy sources as they are definitely cleaner and more sustainable sources of energy.”

Mr Tow, however, says he won’t put money into green investments any time soon. He feels current economics do not justify a shift to alternative energy in the short term as crude oil continues to be more affordable than other energy sources. “It will take quite a while more for green energy to become mainstream, and this will only happen if the cost of conventional energy continues to escalate,” he says. “The financing of new technologies and state-of-the-art infrastructure could potentially lead to an increase in total debt and liability, thus making green firms unattractive to investors.”