Fri, Apr 12, 2024 page9

• Green is the new crypto for corporate rebranding

  Companies that gave themselves new names linked to sustainability enjoyed one-day returns of 15% on average, a study showed

  • By Mark Gongloff / Bloomberg
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  A fun thing about the dotcom and crypto booms was how companies with no previous connection to dotcom or crypto added those terms to their names and watched their stock prices soar.

  Perhaps the greatest example is Long Island Iced Tea Corp rebranding as Long Blockchain Corp in 2017, with a promise to shift from making Arnold Palmers to making crypto. This resulted in a 300 percent rally, years of investigations and no crypto.

  In what might be a hopeful sign for the climate, if not for investors, it turns out green rebranding can also move stock prices.

  

  Illustration: Mountain People

  Companies that gave themselves new names that are “likely to evoke sustainable feelings in investors” between 2000 and 2022 enjoyed one-day returns of 15 percent, on average, a new study by the Leibniz Institute for Financial Research SAFE showed.

  The term “sustainable feelings” in this case refers not to everlasting love or an unquenchable thirst for revenge, but to a belief that a company is somehow involved in the business of sustainability. Words used most frequently in the new names included “green” (the runaway favorite), “water,” “solar,” “environment,” “wind” and “natural.”

  The most iconic rebranding in the study was Brooklyn Cheesecake and Dessert Co becoming Meridian Waste Solutions Inc in 2015. The jokes practically write themselves, so I will not try, but this was a real business change involving a boring holding company with a funny name.

  Anyway, a couple of important caveats here:

  First, the effect only worked on companies that had never before been environmental. Otherwise, investors were not surprised enough to react.

  For example, when Capstone Turbine Corp became Capstone Green Energy Corp three years ago, the stock price did basically nothing. The company was already making microturbines for distributed energy systems that are often powered by renewables, and it was starting to dabble in other clean tech. The name change made sense.

  Similarly, Brooklyn Cheesecake and Dessert was already handling waste when it changed its name. I would love to see a canceled check made out to “Brooklyn Cheesecake and Dessert Company” with “garbage pickup” in the memo line.

  Second, the stock price effect was reversed with prejudice if companies pulled a “Long Island Blockchain” and never got around to doing the green things promised by their name change.

  Such companies suffered monthly returns that were 10 percent lower, on average, than before their rebranding, the study showed.

  It turns out investors can be fooled by greenwashing for about a day, but get kind of mad about it once they discover it.

  This is consistent with the findings of another recent study from the University of Florida, which found that companies facing high climate risks were punished by the market only if they were not bothering to address the problem. Ignoring climate change, in other words, is bad capitalism.

  That is what makes all of this somewhat hopeful for the climate. In an era of Republicans taking a flamethrower to investing based on environmental, social and governance factors every chance they get — often focusing their rage on climate in particular — people have shown a tendency to vote against them with their dollars. The green transition’s ability to attract capital despite political friction is a strength.

  That strength has been in question lately. Environmental, social and governance (ESG) investments have started to underperform the S&P 500 Index, stung by the political backlash and soaring interest rates that make capital-intensive green projects less appealing. Investors and governments pumped US$1.8 trillion into renewable energy last year, BloombergNEF said, but that is still far below the US$4.8 trillion needed annually between now and 2030 to help the world achieve net zero emissions by 2050.

  At the same time, investors have proved they are willing to suffer some financial pain in exchange for the satisfaction of owning ESG investments.

  They would pay 20 basis points more per year to invest in an ESG fund, a 2022 Harvard Business School study showed.

  There is a risk of investors giving capital to greenwashers taking advantage of this sentiment. However, that risk mainly falls on anybody careless enough not to double check whether a company that has just changed its name to, like, Nature’s Environmental Green Bounty Inc, is not actually a coal miner. The market would move quickly on to (ahem) greener pastures.

  The dotcom name trick did not last a decade, but green rebranding has already worked, more or less, for 20 years. An increasingly hot and chaotic climate is only raising the world’s urgency to throw more money at mitigating and adapting to the problem. Practically every company would have to go green eventually, regardless of its name.

  Mark Gongloff is a Bloomberg Opinion editor and columnist covering climate change. He previously worked for Fortune.com, the Huffington Post and the Wall Street Journal.
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