“It’s clear to me that government investment in the environment will be an important engine for economic renewal in the United States,” said Bozena Jankowska, head of the RCM Sustainability Research Team and lead portfolio manager of the Allianz RCM Global EcoTrendsSM Fund. “During his State of the Union address last week, President Obama said ‘The nation that leads the clean energy economy will be the nation that leads the global economy, and America must be that nation.’ This sentiment signals unwavering support which could represent a very significant opportunity for investors.”
In fact, the U.S. Government is already showing they are serious about the impact of climate change on the sustainability of companies. The Securities & Exchange Commission voted last week to encourage companies to disclose climate change risk on their businesses.
Conducted for the third year in a row, the poll of 1,000 adults examined investors’ understanding and attitudes toward the environment as an investment opportunity. The poll was conducted via the Internet between December 28, 2009 and January 12, 2010 by GfK Roper Public Affairs & Media, a division of GfK Custom Research North America. Participants had to have primary or shared responsibility for investment decisions in households with financial assets of at least $100,000. The sample was weighted to match the characteristics of the total online population in terms of gender, age, household asset level and region, according to the U.S. Census. The same methodology was used for the surveys conducted December 12-19, 2008, which yielded 1,264 completed interviews and December 14-20, 2007 which yielded 1,003 completed interviews.
More Investors Find it Easy to be Green
Rising investor demand for the environment persists despite the economic crisis of the last 16 months.
According to the survey, investors continue to view the environmental technology sector as a “buy” with 63% classifying the environment as the most desirable investment opportunity of the 11 categories surveyed. Further, there has been a 70% increase from 2007 to 2009 in the number of investors who say they have already made investments in companies that are capitalizing on environmental trends (17% in 2007 versus 29% in 2009).
“Following the biggest economic crisis since the Great Depression, it is striking that investors, as identified by our survey, are still looking to their financial advisors to bring them interesting investment opportunities, and environmental technology is clearly at the top of the list,” said Brian Gaffney, Chief Executive Officer of Allianz Global Investors Distributors. “Investors realize the potential impact that green investment can have on the economy and they want to capitalize on the opportunity.”
Investors appear engaged to act, with 54% reporting that they are at least somewhat likely to invest in environmental technology over the next year.
The Government’s Green Report Card
When surveyed last year, investors saw the shifting political landscape as a positive development for green investing.
In the Allianz Global Investors 2008 environmental investing survey, 78% of investors said we were likely to see more policies to promote business investment in new environmental technologies in the first year of the Obama Administration than we did under eight years of the Bush Administration. Yet this year’s survey reveals a different tone. Less than half of investors (49%) say that President Obama has done as much as he should to promote environmental investment since he took office.
Congress receives even lower marks. Last year, 74% of investors said that the new Congress will be more supportive of policies to promote business investment in new environmental technologies than the old Congress. However, in this year’s survey only 34% of investors say that the current Congress has done as much as it should to promote environmental investment.
The Portfolio is Always “Greener” on the Other Side
Despite the increase in investor optimism about environmental technology, several misperceptions remain which may be preventing investors from jumping in.
For one, the majority of investors (55%) continue to believe they must sacrifice returns when they make environmental investments. In addition, investors continue to view environmental investing as first and foremost socially responsible (59%) versus a good financial decision (41%).
“These results imply what we believe is a misunderstanding about the investment opportunity presented by the environmental technology sector,” said Jankowska. “Although there is tremendous social value to financially supporting the environment, there can be significant economic value as well. In fact, compared to the S&P 500 index – the proxy for the US stock market – the FTSE ET50 has outperformed since its inception in January 2001.” It’s important to remember, however, that past performance is no guarantee of future results.
The survey also shows that investors view environmental investments as more volatile to their portfolios. Seventy-one percent say that investing in environmental opportunities makes their portfolio more volatile.
“Volatility should not be viewed in isolation and investors should consider the complete makeup of their portfolios to adequately assess volatility risk,” said Jankowska. “Although the standard deviation of the FTSE ET50 is a bit higher than the S&P 500, an allocation to environmental technology may not necessarily increase the overall volatility of a portfolio as it has been shown to have a low correlation with other asset classes like fixed income and commodities.”
Seeking Help to Go Green
The survey found that investors are eager to learn more about environment-related investing opportunities, and are looking to their financial advisors for help.
More than two-thirds (69%) of all survey respondents agree they would need to consult a financial advisor for help investing in the environment. Among those with a financial advisor, a large majority (76%) think that their advisor is at least somewhat knowledgeable about environmental investing and half (50%) think it is important that their advisor bring them more environment-related investment opportunities. However, 72% of those investors say that their financial advisor has yet to recommend an environmental investment opportunity.
“Environmental investing represents a unique opportunity for financial advisors to provide significant value and insight to their clients,” said Gaffney. “The environmental technology sector is complex, and innovation is occurring rapidly and on a global scale. Investors need guidance on how they can intelligently and profitably participate.”
