We use the term "Next Economy" frequently at Green Alpha Advisors, so perhaps the best way to introduce our investment thesis is to define the term. By 'Next Economy' we mean the economy as it must exist in the future to make human civilization function within Earth's environment. And functionally, it means that we invest in the best companies that are providing solutions to the most critical crises confronting the environment and therefore civilization.
Green Alpha Advisors seeks to identify and invest in the best of the companies leading the way to the Next Economy. For us, a Next Economy company is one that has identified one or more of the daunting environmental problems facing civilization and has put their business in the path of addressing that problem(s). We believe that the best of these firms, as determined by rigorous quantitative financial modeling, are likely to be among the fastest growing as the sustainable economy continues replacing the legacy economy, the legacy economy having been characterized by 19th and early 20th century technologies such as coal fired electricity and oil burning vehicle fleets.
Environmentally focused, green investing is not an asset class. Rather, it is a vision for how the global economy must evolve to operate in an environmentally sustainable world, and a method of investing risk-averse capital for the long-term. The global economy faces significant structural challenges. Macroeconomic and geopolitical factors such as energy security, technological innovations, globalization and climate change provide strong growth drivers to well-managed, eco-efficient businesses. Environmental considerations are an inherent attribute of investment risk and return valuation regardless of enterprise size, economic sector of activity or country of domicile. For any given investment universe there exists a subset of companies that embrace environmental stewardship as part of doing business, whether it takes the form of risk mitigation, is the source of strategic growth, or both. Ceteris paribas, these companies represent a lower capital risk and hold potential for higher return on equity over long-term investment horizons.