Portfolio Manager Equities - ACTIAM
After the shareholders had defeated a motion by the sustainable real estate company Alstria last September, they then actually went on to adopt an identical motion this past May. The motion was about 'green dividends'. The shareholders could either agree to the green dividend, of 1 cent per share, being paid out or else have it invested by Alstria in green solutions that did not, per se, achieve the return objectives. This most recent vote was the first time we'd seen a green dividend. From the shareholders' perspective, this was a mix of normal return and an investment in the energy transition.
Alstria's introduction of the green dividend stemmed from the marginal profits that are available from making existing and new-build property more sustainable in relation to CO2 reductions. Making buildings more sustainable does not make huge returns for each invested euro when you're considering CO2 reductions. The real estate projects that Alstria had identified cost €29,000 for every tonne of CO2 savings.
Other projects that do not involve real estate can save, on average, 1 tonne of CO2 for every €350. Alstria felt that this discrepancy was too great, so it was a good reason for getting the shareholders to vote on the issue.
The distribution of dividends generally means that a business is short of options for investing the money efficiently and profitably enough. Alstria said it could invest this money, but not in standard investments and also at what would be lower (albeit properly sustainable) rates of return.
This was to be offset against returns, even though it was 1 cent per share or 2% of the dividend, that an investor would be receiving.
“From the investment perspective, opting for a green dividend will always be predicated on whether the projects being financed are still actually profitable.”
So what happens if you translate this to the global stock market? How much money could in theory be generated with this each year for scaling up investments in the energy transition? Say we take 2019, when total global dividends amounted to €1.21 trillion; 2% of that would release €24.2 billion for investing in green projects.
From the investment perspective, opting for a green dividend will always be predicated on whether the projects being financed are still actually profitable. It will be a very significant factor, despite lower dividends, that the standard return objectives might not be achieved but that the projects are profitable and add value for a business.
If a business uses green dividends to start investing in loss-making projects, simply because it has to invest in green projects, it would make more sense from an investment perspective to get the dividend paid out and then invest it in other businesses that can invest profitably in similar projects. If Alstria, a real estate company, suddenly starts building wind farms that are loss-making because it doesn't have the requisite expertise, surely it would be better to spend the distributed dividend on listed wind farm developers with a profitable track record?
It seems to me that, from a sustainability viewpoint, we should be celebrating initiatives like the green dividend. What I'm interested in is finding what others think about businesses like this.
Is a company that operates a green dividend just that much more green as a result?