Friday, July 20, 2007


It has become quite popular for companies to tout their environmental friendliness. What other corporate initiative impresses all constituencies - employees, customers, shareholders - at the same time?

The technology suppliers such as Intel, Dell, Motorola among others were quick to enter the race for the “green.” Indeed, it has been the behavior of companies like those that led to the new term “greenwashing.”

For some environmental preservation is more lip-service than fact. Investors have to look closely to determine if a company is actually realizing gains, either through energy conservation or pollution reduction. That is easier said than done. In a series of posts in May 2007, I discussed how difficult it can be to find sufficient details on carbon emissions, as an example.

While the technology companies appear to be elbowing each other aside for a post position, the construction industry appears to be giving environmental matters a big yawn - at least from public relations standpoint. None of the major home building companies or general contractors have launched media campaigns on their environmental initiatives.

It is not the energy conservation or pollution control is not part of the construction industry vernacular. The Hearst Corporation is building a showcase building in Manhattan, using the most advanced energy conservation and recycling construction approaches. The building will use 26% less energy and 10% less water than a conventional building. It is the first office building in New York to be certified by the
U.S. Green Building Council, a non profit that promotes environmentally friendly construction.

There are 1,000 buildings already certified by the USGBC and another 6,000 under construction around the country. Since there are over five million office buildings around the country, I would have to say the environmental movement is just out of the starting gate.

Yet by comparison with the technology sector, the construction group seems to have accomplished something without a great deal of fanfare or discussion. Among the dozens of public general contractors and engineers, we found only
EMCOR Group (EME: NYSE) and Servidyne, Inc. (SERV: Nasdaq) on the Green Building Council membership list. Of the top-twenty residential construction companies, only KB Homes (KBH: Nasdaq) has bothered to join.

This is not to suggest that the Green Building Council has failed to penetrate the construction industry. Indeed, the group has hundreds of members. This suggests that the construction industry has been slow to pick up on the public and investors relations value in talking up corporate “greenness.” Of the three companies mentioned above only EMCOR Group markets its Green Solutions, which is core to its services in planning and executing energy infrastructure.

There does not seem to be a premium for “greenness” unless it is talked up. EME trades on par with the general contractor group. SERV and KBH both trade at a discount to their peers in terms of book value and cash flow but this is probably due to the fact that both Servidyne are KB Homes have struggled with profitability.
So from an investment standpoint, it may not be important when a company really has made a measurable environmental impact - only that they talk about it.

Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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