Diana Clement: Turning your money green is no easy task

Green is the new black ... or is that gold. The point is that our future as a planet lies in environmentally friendly technologies.

Robert Howell, of the NZ Council for Responsible Investing (NZCRI), says there needs to be a substantial and rapid shift from current patterns of investment to investments that save rather than destroy the environment.

Plenty of investors recognise this, show an affinity for their environment, and want a sustainable world for their children to live in. In their day-to-day lives they reduce, reuse and recycle, buy biodegradable cleaning products, conserve water and bike to work. They may even have solar-powered houses. But not all stick to the same ideals when investing.

To ensure their investment portfolios match their values, investors should factor into their choice of funds or companies criteria based on ecological ethical principles that include integrity, reverence or intrinsic value, says Howell.

"Eco" or "green" investing involves investing in companies that support or provide environmentally friendly products and practices. It's the cousin of ethical or "socially responsible" investing, which avoids companies that, as the NZCRI puts it:

•Use child labour

•Pollute land and rivers

•Desecrate the value system and values of a society.

The big green buzzword in the eco-investing world at the moment is "clean tech" or clean technology. According to Wikipedia clean tech is a term used to describe products or services that improve operational performance, productivity, or efficiency while reducing costs, inputs, energy consumption, waste or pollution.

Whatever the terminology, unfortunately in New Zealand it's not easy to put your money where your values lie. We've barely got any sort of eco-friendly investment funds off the ground.

The few "socially responsible" funds there are use what's called a "negative screen", which rules out companies that actively trade in unethical or unsustainable areas, but don't actively look for good companies.

Green Party co-leader Russel Norman this week said that one of the challenges we face as a country is to build up a responsible investing sector - something which has happened in countries such as the US, UK and Australia.

Norman would like to see the build-up of responsible funds that, through competition, make capital cheaper for businesses doing good things and more expensive for those doing bad.

The reality is that we'll only get the groundswell when fund management companies and investors look set to make good money from environmentally friendly investing.

That will happen. When fossil fuels are about to run out, the companies that can invent and market the replacement technologies will be the Googles or Microsofts of the next era. Investors who get on board early could make a small fortune.

In the US, venture capitalists are investing more in clean technology than biotech and software. These investors don't expect inferior returns on their money.

But like any new area of investment, it's important to beware of hype and bubbles that can develop around "the next big thing".

Coming back to New Zealand, there is a distinct disconnect between Kiwis' green credentials and their desire and ability to invest according to their values.

Some old-school financial planners actively frown upon eco investing because it limits the choice of stocks and funds to choose from.

The options for KiwiSavers wanting to support, encourage and benefit from clean tech are virtually nil. We have negatively screened socially responsible investment options, but nothing actively green.

What to do with an eco-conscious investor is a question that vexes Michael Taylor, who runs Christchurch-based Strategic Financial Planning. Taylor describes himself as a missionary for ethical investing.

"I have been keen on this area for years," says Taylor. "But there hasn't been a market for it in New Zealand or a sufficient range of products to create proper diversification."

The irony is that without proper diversification, Taylor can't invest ethically on behalf of the client. Nor can he recommend clients invest in eco-friendly finance companies such as Prometheus because they do not have a credit rating.

Prometheus was founded as a charitable trust. It takes deposits from the public, on which it pays interest of up to 4.25 per cent a year, and lends to companies involved in areas such as renewable energy, sustainable agriculture, energy-efficient housing and resource recovery and habitat protection.

Strategic's clients who want to invest according to their consciences often have very specific needs, says Taylor, which means that even a vanilla-flavoured international ethical trust may not suit them.

For those clients who want their eco or ethical values reflected in their portfolios, Taylor promotes a number of Australian and UK-based funds as being a good start. They include funds from Australian-based Hunter Hall Investment Management, and Blackrock in the UK.

Taylor won't recommend individual equities to clients because of the diversification problem. Even if he wanted to go down that route there are only a couple of outright clean tech companies listed on the NZX's main and alternative markets. They are Windflow Technology and NZ Windfarms.

With both funds and individual equities, investing globally gives much more choice, says Michael Walsh, ethical analyst at Hunter Hall. Walsh says some of the best technology on offer wouldn't be commercially feasible in smaller countries such as Australia and New Zealand.

Another option for people is to invest directly in small start-up companies via angel networks which match private funding with new businesses.

Andy Hamilton, chairman of the Angel Association of New Zealand, says a number of clean tech companies have received funding this way, such as LanzaTech, with its biofuel production process that can be retrofitted to industrial facilities, and KaayaSand, a company that has designed rock-crushing machinery to recycle concrete.

Hamilton also cites Nova-Eco-Tech, EcoPortal, and Down to Earth Systems as early stage, "great companies at the beginning of their journey and will be looking for money in due course".

"You need deep pockets" to be investing in such companies, says Brent Ogilvie, whose business, Pacific Channel, invests seed capital in life sciences and clean tech companies.

The minimum investment through Pacific Channel would be $25,000, says Ogilvie, and "you wouldn't be looking to invest more than 10 per cent (of your capital) in early stage illiquid high-risk, high-growth companies, and only 10 per cent of that in any one company".

The returns, however, can be high if you can cope with the long horizons and high-risk associated with this type of investing.