March 27, 2009

A Clear Vision

If you--like Dr. Richard Sandor--believe in the proposition that air and water will become the asset classes of the near future, you understand that companies helping to provide clean air and water will be good investments.

Sandor, a Ph.D who is chairman, CEO and founder of the Chicago Climate Exchange (CCX) which, in turn, owns the Chicago Climate Futures Exchange (CCFE), is an acknowledged pioneer in the design and implementation of market-based mechanisms to address environmental concerns. The CCX, for example, claims to be the world's first and is definitely North America's only voluntary, legally binding registry and trading system for integrated greenhouse gas emissions reduction.

An acknowledged visionary for his contributions to the creation of the interest-rate futures market--he has been called "the father of financial futures--Sandor earned a place among Time magazine's "Heroes of the Planet" as the "Father of Carbon Trading"

Last week, Sandor participated in a panel discussion sponsored by Dow Jones Indexes/STOXX Ltd. in New York. (See The First 100 Days.) In an exclusive, follow-up interview with Wealth Manager Managing Editor Nancy Mandell, he speculated on post-recession investment opportunities.

In Sandor's opinion, the current recession will be followed by a period of wealth creation in the green technology area, a sector that extends far beyond the socially responsible investing of previous decades. A more apt comparison, says Sandor, is the commoditization of technology in the 1990's--perhaps better known as the tech bubble. But the similarities will lie in the value creation that accompanied the tech boom--the communications explosion, the Web, cell phones, for example--rather than the boom-and-bust cycle.

"We will basically transform our economy with new developments related to air and water--new kinds of windmills, photovoltaics, hybrid technology. Some of this will be done by existing companies, some by start-ups," he says. "Putting a price on carbon will further this because we can monetize the effects."

The cap and trade system employed by the CCX and other climate exchanges around the world caps the amount of pollutants that member firms are permitted to emit and distributes allowances or credits that represent the right to emit a specific amount. Companies that do not meet the cap buy credits from companies that emit below their specified amounts.

In another similarity to the tech boom, interest in green and so-called sustainable technologies seems to be driven more by individual investors than by their financial advisors, who--Sandor speculates--would probably benefit from further education. "It would serve advisors well to be aware of the developing opportunities in the sectors that are dealing with sustainability," Sandor says. "People interested in playing in that space can do it by buying stock in listed companies. There will be opportunities to create wealth. And individual investors are certainly aware of the stock indexes for renewable energy, the ETFs, the private equity investment. You can't help but notice...the Dow Jones Sustainability Index, the (Dow Jones) U.S. Water Index."

Sandor says it is probably time to target education of the advisor community. "We are seeing a significant interest from advisors, because high-net-worth individuals are attracted to the sector--partly because it carries an excellent risk/reward and secondarily, because there's a component that wants to do the right thing. After all," he adds, "You can do good and do well!"

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