Hot New U.S. Industry: The Environment
It was both ironic and a bit sad that environmentalists--shouting “Wall Street kills”--protested outside the New York Stock Exchange on Monday.
Because, for one thing, Wall Street loves the environment--it provides fresh merchandise for the securities business, after all.
Just last week, a syndicate of the leading brokerage houses--Merrill Lynch, Shearson Lehman, Prudential-Bache, Paine Webber and Dean Witter--brought out a new investment trust devoted to the environment. Two previous environmental trusts have attracted $200 million of investor money, with the brokerage houses pocketing 4% sales charges.
Fidelity Investments has a $100-million mutual fund devoted to the environment; John Hancock’s Freedom Environmental Fund is not far behind in total assets. And there are smaller, so-called green funds, such as $25-million Progressive Securities, that invest in companies deemed to be environmentally sound in conducting operations.
Clearly “Wall Street sells” is a more accurate slogan than “Wall Street kills.”
But beyond slogans, there are signs the environment may be more than a source of quick commissions--that it may truly be an emerging industry.
It is now attracting venture capital and entrepreneurial companies. First Analysis Corp., a Chicago investment and research firm, has $4 million committed to such start-ups as Advanced Environmental Recycling, a Springdale, Ark., company that turns waste plastic and wood fibers into building materials, and EnviroGuard, of Houston, which sells rice hulls as filters for industrial wastes.
Chicago Corp., the investment banker that 19 years ago issued the stock of Waste Management Inc., is forming a venture capital fund. And Hambrecht & Quist, the San Francisco firm that launched Apple Computer and Genentech, has $17.5 million backing new companies that recycle solvents and do research on microbes to break down garbage.
How good an investment is the environment? In their brief history, the environmental funds haven’t been world beaters. But Waste Management, a company the environmentalists don’t like, has done very well, growing 20% a year. At $4.5 billion in revenue, Chicago-based Waste Management is the largest company in garbage disposal, which is no longer a local trash business but a $25-billion, high-technology global industry.
Environmentalists criticize the company because it has been cited for violations by the Environmental Protection Agency, but investment managers defend it, pointing out that Waste Management faces greater risks because it works more waste disposal sites than any other company. Waste Management itself is now meeting with objecting environmental groups to defend its record.
But nobody disputes the fact that the environment is a legally risky business--regulations change frequently and there are a lot of them, from federal, state and local authorities. Yet that’s one big reason it’s a growing business.
“Yes, regulation is a moving target,” says Donald Andres, senior vice president of Emcon Associates, a San Jose engineering firm that designs environmentally safe landfills. “But our business expands as knowledge of the problem expands.”
For example, EPA is about to issue new regulations for the nation’s 6,000 landfills, most of them municipally owned. And an estimated 80% will be in violation, say experts, meaning cities and counties across the land will have to call for expert help with their garbage dumps.
And that means business for companies such as Emcon and Waste Management, which these days are staffed with chemists and geologists capable of making sophisticated judgments about subterranean water and rock formations. Ultimately, what used to be simple garbage has now become a long-term financial liability--creating a growing market for insurance.
It may sound to some as though the environment is only riding a tide of red tape. But growing knowledge and changing standards have as much to do with it as regulation. For example, the $300-million market in industrial face masks is undergoing change.
Previously, masks were good enough if they filtered impurities as small as 1/20th of a human hair. But public health consciousness and new federal regulations have changed the standard to 1/200th of a hair.
And so an Egyptian immigrant with a doctorate from the Massachusetts Institute of Technology named Amad Tayebi and a veteran U.S. manufacturing executive named David Scott think that they can make a success of a new kind of mask and a new company named Better Breathing Inc., of Lawrence, Mass.
The point is that industries emerge and fortunes are made, when knowledge grows and standards change. And that’s what is happening now, despite environmental groups--such as the Wall Street protesters--who denounce business and call for a halt to economic growth.
The cold reality is that environmental reform has momentum today because it offers opportunity for business, says Andres of Emcon, who has been active in the field for 27 years. “If you try to subsidize the environment with taxes, the momentum won’t be sustained.” Anybody who has attempted to raise money, or build enthusiasm, for causes such as public education knows Andres is right.
On the other hand, the emerging global environmental industry is one the U.S. leads. That’s why Waste Management is expanding rapidly overseas, and Kidder, Peabody & Co., the investment firm, is holding seminars in Europe to explain this new American industry to eager investors. Maybe “Wall Street builds” should be the slogan.
