The ET50 and the financial crisis

Over the financial crisis following the collapse of Lehman Brothers in September 2008, stock markets suffered. As you can see from the graph, the Environmental Technology Index, which had been experiencing high levels of growth, took a dramatic fall. Investors sold their shares in “risky” companies as they took more cautious positions, renewable energy stocks were particularly effected.

The top 10 holdings of the index in December 2007 were a mixture of wind, solar, and waste disposal companies. Wind and solar companies were badly impacted during the financial crisis. Vestas, a wind turbine company and the top holding of the index, fell by 69%.

Up to the present for environmental investing

There has been no recovery for many renewable energy companies since 2008 with stagnant, or falling share prices. Vestas share price has steadily fallen since June 2009. An article by MarketWatch claims this is down to: “missed profit projections, low profitability and negative cash flow”. It has not all been bad news though, Stericycle, the waste disposal company, however, fared the financial crisis quite well, and is now worth around 40% more than before the crisis.

Stock markets have fallen again in August 2011 with the Greek, Spanish and Italian debt crises, together with the downgrade of the US credit rating. Is there hope for the future? If clean energy companies help society meet our low-carbon energy needs, will there not be profit for investors?

Into the Future for environmental investing

There has been much discussion around whether or not renewable energy is a “green bubble”, or whether it represents a sound investment opportunity. Recent weak performance has been as a result of the bankruptcy of US solar companies, caused by the dramatic falls in solar panel pirces. In time this should make solar a more competitive market alternative. The task for investment managers will be to find the companies that can produce renewables at these low prices profitably.

Many countries have targets for renewable energy, China hopes for 15% of power generation to come from renewables by 2020. Governments worldwide are enacting low-carbon energy policies, and providing subsidies for these technologies, in the hope that carbon emissions will fall.