Study Shows Coal is a Bad Investment

There was a time when investors made a great deal of money from investing in coal, but new research shows that those days are drawing to a close.

As reviewed in a ThinkProgress article by Joe Romm, Goldman Sachs has published a new research paper shows that coal used to generate power is no longer the profitable investment it once was. The tile of the paper says it all, “The window for thermal coal investment is closing.”

As explained in the paper:

"We believe that thermal coal’s current position atop the fuel mix for global power generation will be gradually eroded by the following structural trends: 1) environmental regulations that discourage coal-fired generation, 2) strong competition from gas and renewable energy and 3) improvements in energy efficiency. The prospect of weaker demand growth (we believe seaborne demand could peak in 2020) and seaborne prices near marginal production costs suggest that most thermal coal growth projects will struggle to earn a positive return for their owners."

The Goldman paper projects a flat future for shipping coal by sea. The waning demand for coal is a global phenomenon. This even includes China where the near-term demand for coal imports is "collapsing."

Washington state’s Department of Ecology recently said its review of the Gateway Pacific Terminal at Cherry Point, will include “an evaluation and disclosure of greenhouse gas emissions of end-use coal combustion.”

As explained in a Sightline analysis, the burning the 48 million tons of coal proposed for annual export from the terminal would release roughly 100 million tons of carbon dioxide. Efforts to combat climate change through emissions reductions would be utterly undermined if this coal were shipped.

© 2013, Richard Matthews. All rights reserved.

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Investing in Energy Efficiency

One of the most promising investment areas for 2013 may come from the area of energy efficiency. Unlike some other investments, this compelling investment opportunity is being driven by companies seeking immediate cost savings. For the investor this can translate to a shorter payback period. According to most estimates, global power needs are expected to rise more than 50 percent in the next few decades. This growing investment arena will increase the market demand for energy efficient lighting, engines and buildings.

Energy efficiency companies tracked by the Roen Financial Report have done extremely well in the past three months. Almost three quarters of stocks have been gainers, and 45 companies, or fully 20 percent of those energy efficiency businesses covered, have gained over 25 percent for the quarter.

Here are two long-term energy efficiency investments: A. O. Smith Corp. (AOS) and Tetra Tech, Inc. (TTEK). AOS is in the commercial and residential water heating business, which has a strong balance sheet, excellent sales growth, reasonable debt levels, and its stock is considered undervalued in the high 60 to low 70 price range. TTEK is an engineering and management firm whose services include water resources, energy efficiency and carbon management. It is a very well-managed company with excellent free cash flow, but its stock is considered overvalued at current prices. If it dips to the mid to low 20’s, TTEK would merit a look.

As with all investments look for energy efficiency companies with good products, capable management and strong balance sheets.

© 2013, Richard Matthews. All rights reserved.

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Stock Exchanges Increasingly Recommending Sustainability Reporting

A growing number of stock exchanges around the world are recommending sustainability reporting. A number of diverse groups support sustainability reporting including the Rio+20 (negotiating text) and the U.N. (secretary general’s High Level Panel on Global Sustainability).

The Brazilian stock exchange (BM&FBOVESPA), also recommends that its listed companies either publish sustainability reports or explain why they do not. The initiative is intended to create a public database of reporting which was made available at Rio+20. BM&FBOVESPA says it was the second exchange in the world and the first in the Americas to use the GRI sustainability reporting model in its own annual report, starting in 2010.

Sustainability reporting is already a requirement for listing in the stock exchanges of South Africa, France and Denmark, and for state-owned enterprises in Sweden. The European Union is also considering the introduction of mandatory sustainability reporting for all member states.

In addition to recommending sustainability reporting, stock exchanges themselves are working towards reducing their environmental impacts. The NYSE Euronext announced it had become first carbon-neutral global exchange operator. The exchange’s recent environmental initiatives have included installing super-insulating SeriousGlass in the New York Stock Exchange building. NYSE also recently launched three regionally-focused clean energy stock indices together with Bloomberg New Energy Finance.

© 2012, Richard Matthews. All rights reserved.

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Environmental Comportment Impacts Stock Valuations

According to a Deloitte report, information about a company's environmental conduct directly impacts its market value. The report from is titled, “Drivers of Long-Term Business Value: Stakeholders, Stats and Strategy.” The research drew on an MIT study of US publicly traded companies from 1980 to 2009. The 30 years of data reviewed in the study showed that stock prices dropped an average of 0.65 percent within a two-day window following the release of negative environmental news.

The risks from bad news appear to be greater than the benefits of good news. As reviewed in the study, investors tended to react more strongly to negative environmental news with the effect getting stronger with each passing decade. While positive news on a company’s environmental behavior produced an average increase of 0.84 percent in the stock price, the study shows that the increased valuations have decreased over time.

The take away from this is that responsible environmental practices may do more to protect against bad press than increased stock valuations from good press. In other words, responsible environmental conduct may be expected while negative environmental actions are punished in the marketplace.

The Deloite study offers clear evidence that shareholders are increasingly interested in environmental performance.

© 2012, Richard Matthews. All rights reserved.

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Mandatory Emissions Reporting on the UK Stock Exchange

Starting in 2013, UK companies will have to report their greenhouse gas (GHG) emissions. At the Rio+20 conference in Rio, UK Deputy Prime Minister Nick Clegg announced that starting next April, companies that are listed on the London Stock Exchange will be required to publish their GHG emissions in corporate earnings reports. The rule affects about 1.800 businesses and in 2015, it will apply to all 24.000 large corporations based in the UK. Companies will be required to publish annual GHG emissions, measured in tons of carbon dioxide equivalent.

“While nine out of 10 chief executives say sustainability is fundamental to their success, only two out of 10 record the resources they consume,” Clegg said. Many businesses are welcoming the common standard which will enable shareholders, investors and others to make comparisons. These new government regulations will provide greater clarity and transparency which will in turn help enhance energy efficiency initiatives.

“Counting your business costs while hiding your greenhouse gas emissions is a false economy,” he was quoted as saying in a statement issued by Britain's environment department. ”It saves companies money on energy bills, improves their reputation with customers and helps them manage their long-term costs, too.”

The London stock exchange may be at the head of a trend. The Nasdaq and four other stock exchanges said they would urge their 4.600-plus companies to produce sustainability reports.

© 2012, Richard Matthews. All rights reserved.

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Green Investing Part 1: Objective Research and Analysis

Despite wild fluctuations in the stock market, Green is becoming a major economic power. However to be a successful investor in this area you must remain objective. Emotions are often harmful to the value of an investor's portfolio, this is particularly true in Green investing. For many investing in Green businesses, decisions are based on their hopes rather than on objective research and analysis. A successful (Green) approach to investing implies more than the ability to recognize a good concept or anticipate a trend, to be a bottom line investor you must also research and analyze a company's finances and business practices. Examine the management, the uniqueness and positioning of the product, the industry, and the competition. Consider also the future growth prospects for the company and the industry. Above all, effective analysis must review the plan for integrating green technologies or concepts into sustainable profitability.

Investors may also want to consider Green Chips, (exchange traded funds or "baskets" of green energy companies). Although sustainable energy gets a lot of attention, there are many smaller opportunities that offer favorable rates of return. Assess risk by anticipating obstacles, and the individual set of pros and cons that come with each investment. To help minimize your risk, diversify your portfolio.

When eco-convictions hold sway over analysis, invest only what you can afford to lose. When analyzing a Green investment, research the details and remain objective.

Next: Green Investing Part 2: The Green Wave

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