Friday, May 9, 2008

Equity Risk Premium and Green Investing

On Monday we had a couple posts on ERP* and the Alt/Renewable/Clean/Green space:
Will Green Investors Demand Higher Risk Premia?
What Risk Premium Is “Normal”?

Today, Environmental Capital had a post that allowed me to partially fulfill my promise to develop the thesis a bit further:

...But there could be other reasons, suggests Dow Jones Newswires (sub reqd.): The shaky economic outlook is damping a lot of investors’ risk appetite for new or small companies in sometimes fragile sectors. The fact that many U.S.-traded clean technology companies are so exposed to the U.S. market doesn’t help, either. DJ reports:

“The problem with clean tech is those are high risk names,” said Steven DeSanctis, head of U.S. small and mid-Cap strategy for Merrill Lynch. “It’s a cutting edge technology and the risk appetite just isn’t there for them.”
“Clean technology is an industry that does well when the economy does well. The more the domestic economy falters or struggles, the less interest there will be in any new technology names,” said Marc Pado, U.S. market strategist for Cantor Fitzgerald....

Here is some of my thinking, from the cheap seats:


You’re on to something important here.
I’ve been thinking about equity risk premium more than usual.
(I know, gotta get a life)
Investors will be demanding higher risk premiums (i.e. lower valuations) going forward.
For reasons as varied as Ken Livingstone losing the London Mayoral (and Browne’s subsequent about face on green taxes) to the six cent cut in the blender credit in the farm bill to Germany switching their focus from solar to wind to New Zealand’s 180 on their approach to Kyoto to the coming collapse of Lieberman-Warner, folks are realizing the truth of Sen. Simon Cameron (D & R!-PA):
“The honest politician is one who when he is bought, will stay bought.”
Add to that the risk that somebody in a lab in Shenzhen can make your product obsolete tomorrow and this area is tailor-made for fortune building, or losing.
It’s not easy being a rent-seeker or VC.
That’s why we have lobbyists.

Comment by Climateer - May 9, 2008 at 3:24 pm

*For the persnickity, I'm using ERP as a short-hand for all the risk premia; political, technological, etc.
Old-timers will note that Sen. Cameron makes an appearance.
Some might think it lazy blogging, to repost comments from another blog.
I prefer to think of it as efficient.