Does Going Green Hurt Shareholders?

By Glenn Curtis | November 13, 2007 AAA

There is segment of the investment community that believes that when a company goes "green", it does so at the expense of its shareholders. While that may be the case in a few situations, I would argue that shareholders are usually better off when the company they own stock in adopts environmentally friendly policies.

First, let's examine a little company you may have heard of called Ben & Jerry's for an example of how, in the past, going green could hurt the bottom line.

Pass The Chunky Monkey
Ben & Jerry's is almost as well-known for its environmentally friendly policies as it is for its Chunky Monkey ice cream. Over the years, its two founders, Ben Cohen and Jerry Greenfield prided themselves on developing a company that had the means and a passion to help preserve our planet. The company is known for 7.5% of its pre-tax profits to charity, as well as for using environmentally friendly containers and processes to make its delectable ice cream.

The trouble however, was that Ben & Jerry's was never able to generate consistent eye-popping profits or lure a slew of high profile institutional players. That was because it was so green. The company was eventually purchased in 2000 by Unilever (NYSE:UL) for $326 million, but the price could arguably have been higher had Ben & Jerry's been able to produce consistent annual income - for its fiscal year 1999, Ben & Jerry's produced net income of only $3.4 million, while it earned $6.2 million in 1998 and $3.7 million in 1997.

In short, it reasonable to make an argument that a focus on green business practices hurt Ben & Jerry's shareholders, as the effort spent on green initiatives could have been directed toward improving the bottom line during the 1990s, which would have a had a direct benefit for shareholders.

To be clear, an investment in Ben & Jerry's ultimately wound up paying off (for those who were patient), because Unilever eventually offered a solid price for the company's shares. That said, had the company directed all its time and energy into improving its bottom line, I would argue that its investors could have received an even larger payout, and in that respect the company's allocation of resources to green initiatives may have actually hurt shareholders.

What's Changed
I think that Ben & Jerry's altruistic nature is an exceptionally rare thing. These days, it seems that when companies give, they're a little smarter when and how they do it. Here are some examples:

• Citigroup (NYSE:C) is spending $50 billion on green projects and eco-friendly buildings.
• Continental Airlines (NYSE:CAL) has spent $12 billion in the last 10 years on energy efficient planes
• Bank of America (NYSE:BAC) has committed $20 billion to "green lending" for the next decade.

At the end of the day, these companies are either getting something back in the way of reduced expenses, or they are making sure that what they give isn't a burden on their bottom line. Companies these days are going green, but they aren't doing it blindly - the way Ben & Jerry's did at times. The total cost to shareholders is always factored into charitable and environmental giving.

The Bottom Line
In some cases going green could hurt shareholders, but overall, I think shareholders profit when companies adopt environmentally friendly policies. From our position of hindsight, it appears Ben & Jerry's green practices came at a pretty big cost to its bottom line, but regardless, the company ended up doing very well in the end.

Is it possible to be environmentally friendly and still make money? Read our Green Investing Feature for both sides of the story.

Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!

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