Is Investing in Green House Gas Auditing Companies Worth the Gamble?

• By Deborah Sweeney
• Aug 22, 2011

Greenhouse gas (GHG) auditing is predicted to be one of the next biggest global industries as more countries are attempting cut down their carbon footprint and have passed laws requiring corporations that operate within their borders to dramatically reduce their levels of pollution. Back in February, greenhouse gas auditors formed a lobby group in Geneva with the express purpose of expanding their industry into United Nations countries. However, serious questions have been raised as to how profitable this industry will be, and whether it is even worth investing in at such an early stage.

The primary issue lies in who the targeted consumers of the service are. Among the major corporations in the world, there are outliers who are attempting to cut their greenhouse gas emissions simply to appease their own customers. Most of these companies do have their own, in-house, GHG team tasked to cut their pollution levels. However, if they have customers who would like to see them actively reduce pollution, using a third-party company to audit their GHG data is extremely useful. So some GHG auditing companies have had success early on.

However, very few of these environmentally conscious companies exist. There will likely be no real push for monitoring GHG standards unless it comes from the federal government. To make matters worse for the fledgling industry, the process of auditing GHG emission reports is fairly complex. There are a large amount of variables to consider: the equipment and standards used are new, and there are few models new companies can build themselves to emulate. After all, in a new industry, all of these companies are pioneers. While the potential for profit is high, there is also a large potential for failure.

All of this comes down to whether the government will be willing to pay for any of this and if the industry will rely solely on private consumers. Their tactic of lobbying United Nations members does show that the industry is hoping for some sort of government aid and is willing to pay lobbyists in the hopes of securing contracts before setting up a business in a particular country. Things are no different in the United States, though there are few lobbyists that are directly paid for by members of this industry. Most environmental group lobbyists will push for some sort of accountability when it comes to companies adhering to emission standards, but will have their own agendas and may not push for exactly what this fledgling industry needs: specific funding and contracts.

To make matters worse for GHG companies, there are lobbyists fighting to remove any funding currently available from the federal government. The enforcement of the Clean Air Act is the best possible prospect for many of these companies. However, the Clean Air Act is a thorn in the side of many top corporations, which have the money and prestige to actively campaign against it. While groups like the Sierra Club are useful allies, the resources available to fight Clean Air Act rollbacks are comparatively slim.

It is in that issue that the primary threat to GHG auditing lies. Politics is difficult to navigate, and it takes a considerable amount of resources and experience to truly effect any change. If this fledgling industry cannot actively persuade members of congress to support them as an option for enforcing emission standards, the future is not very bright for these companies. And, in an era of economic recession and a politically divided congress, it is very doubtful that any significant moves to enforce the Clean Air Act will be successful. The best this industry can hope for is to convince lawmakers that investing now could yield significant job growth in the near future. Due to the specific training that employees must undertake to competently handle their tasks in this industry, it is again unlikely that potential job growth can be proven.

Taking this matter to individual states is another option, especially as certain states have stricter emissions standards those imposed by the federal government. But many of the most environmentally friendly states are just as tight on funds as the federal government, so it will again be difficult to free up the money needed to make this industry profitable.

All of these factors indicate that investing at this particular moment may not be the best idea. Not all of the money invested in these companies can viably go just to support them. Some of it will be used to fund lobbyists trying to secure contracts for this industry, and thus the returns on investments may not be strong enough to make investing worth the risk. Most of the companies in the industry now are young, and the wait-and-see approach may be the better option for investors, at least until the economy recovers and the political landscape becomes a bit more environmentally friendly.

By waiting to enter this industry the gamble is reduced, but so are the potential rewards. If you do choose to invest this early, keep in mind that there is a rocky road ahead, and only those companies, employees and investors that truly care about reducing GHG emissions to the point where they do not mind operating in the red for a few years will likely make it to the light at the end of the tunnel.