Executive Summary
Three companies: Nissan, Vestas and Rio Tinto have been analyzed for long term investments. Particular importance was given to financial prospects along with political situation and the ecological friendliness. Nissan scored better on the ecological friendliness and the new policies through the development of its new emission-free car but its financial prospects were to expect to reach optimal level in the next few years. Vestas was environmentally friendly through its work of constructing wind turbines and was being supported by the government policies of investments into researching the renewable energy sources. It has strong financial position even in the recessionary period compared to others. Last, Rio Tinto was facing severe legal issues against itself from different countries on human rights issues, bribery and leaking of state secrets. The company also lacks the strong financial prospects as its net earnings reduced by 65% for the half year. Hence, I would recommend investing $100,000 in Vestas that has a sound financial path ahead and works for a greener planet with all its available resources.
Introduction
The purpose of this report is to analyze possible companies for long term investments that have sound financial prospects and are ecologically friendly. The report will examine the three major companies: Nissan, Vestas and Rio Tinto and investigates their merits and demerits and recommends the final investing company that will be beneficial to Ethical Investments. The analysis is based on multiple criteria: financial prospects, political situation including legal issues of the company and environmental aspects, with more importance given to financial. At the same time due importance is also given to other two factors in the final decision. The data analyzed for reaching the final verdict has been obtained through the secondary sources including new reports.
Nissan
Nissan is one of the most highly positioned and respected company in the global market. The company has now long positioned itself to revive completely and achieve long term growth.
Environment Credentials
Nissan has now developed its image in the global market as an increasing responsible citizen and reducing its carbon imprint on the society as a whole. It has developed an electric car “Leaf” which does not use the non renewable sources such as petrol and diesel but rather runs on the electricity. The car has no real carbon emissions and hence does not intoxicate the air. Nissan has successfully created an environmental friendly product that provides another great solution to the greener planet. Another step taken by the Nissan automakers is an alliance with the Renault. This will reduce the carbon footprint on the society because there will be less use of resources and less overlap (Heasley, 2009).
Financial Prospects
The automaker industry is currently in distress with most of the companies showing reduced profits and even losses. The industry is believed to pick up the pace and be at its previous position in the next few years. Nissan automaker has shown a loss for the first quarter of 2009 but is expected to return to the profits in the year 2010/11. The launch of the new electric car has been pivotal to the strengthening of the financial position of the Nissan. It rose to the highest value in the last 10 months after the launch of this new car. This is because the future scenario for these environmental friendly cars is very promising for the consumers as well as the investors. The company is expected to make huge sales of these electric cars in the coming years. They project that 10% of the total global cars will be electric cars by 2020 (Komatsu, 2009).
Political Situation
The Government is working hard for a greener planet with less carbon footprints each year. It has now moved forward to support the automakers that are moving towards the development of more fuel efficient cars. One of the ways suggested these days is the ‘Vehicle Scrappage Schemes’. In this scheme one would be provided grant to swap an old gas cars for the new fuel efficient cars (Government must drive car industry to greener future, 2009).
Vestas
Vestas is the leading and the most primary manufacturer of the wind technology. It is the market leader in this area of expertise with a market share of 40% around the world (enotes, 2004).
Environment Credentials
The conventional fuels meeting the increasing energy demands are depreciating at an alarming rate. The world is threatened by its environmental hazards and so it is now poised towards finding new ways to the meet the future needs. The wind energy is the most reasonable answer to this problem both financially and environmentally. It is clean and has no intoxicated waste products. It is present in abundance supply and can be reused. Therefore Vestas has insignificant carbon footprint on the planet by controlling the carbon emissions. Hence, it plays its role as a responsible citizen very well.
Financial Prospects
The industry is highly dependant on the banks for the financing of the wind projects around the world because of the high investment involved. Currently, the banking sector is in distress and is not willing to invest in these capital intensive projects (Galbraith, 2009). Despite this fact, Vestas has significantly improved and strengthened its financial position in the last 4 years. It has issued new shares in the market that will be used to strengthen the capital resources of the company and then exploit any opportunities arising due to the credit crunch. The company is also preparing itself for any viable acquisition that presents itself neatly to the company. Vestas has seen a surge in its sales, operating profits and hence the stock price in the current year. Therefore, Vestas has strong financial prospects and in on its way to long term sustainability (Reuters, 2009).
Political Situation
Vestas has closed down two of its factories that have caused a loss of approximately 425 jobs (Randerson, 2009). The workers are agitated and protested to show their vent against the firm. These protestors were supported by the trade unions and environmentalists who were both also against the closing of these factories. Therefore, Vestas runs the risk of being brought to the court in the near future for settlements for these workers. On the other hand, the Government is working hard to develop policies to encourage the growth of the sources of the renewable energy. The government has announced a budget of $14 million for the wind research for the current year (Economist, 2009). It is also working on a bill through which the energy companies will be forced to buy a certain proportion of the electricity from the renewable sources using the lines already laid down in the states. This will be a great boost for the company as the demand for the wind turbines will increase to a larger extent. But the fact remains that still some of the governments have not put their plans for the renewable sources into effect and practice.
Rio Tinto
Rio Tinto is a leading global mining company that extracts and processes different metals and minerals from the Earth’s surface. These metals and minerals are used in our everyday products in almost every society and raise our standard of living.
Environment Credentials
Rio Tinto is trying to develop a responsible citizen image in the minds of the stakeholders and the consumers. They are trying to attain a sustainable environment where the needs of today are met without hampering the ability of the coming generations to meet their own needs. The company’s projects are planned with a log term strategy so that they are able to plan and execute and provide the society with sustainable economic success and social well being. The company works hard for a greener planet by looking for different solutions to the existing environmental problems such as the climate change, emissions and the shortage of water. Therefore, the company is playing its part for a better planet to a greater extent and be accountable for its actions (Rio Tinto, 2009).
Financial Position
Rio Tinto’s financial are not healthy and have declined to a greater extent in the first half of 2009. The net earnings of the company were down by 65% when compared to the previous year first half (Rio Tinto, 2009). This decline has been caused by the sharp decline in the prices and the reduced volumes of certain minerals. The analysts expect the later half to be worse due to the continuing impact of the prices and the reduced volumes (Reuters, 2009). The stock price has also been severely affected by the overstating of the iron ore prices (China Daily, 2009).
Political Situation
Rio Tinto is facing critical legal issues in the current year against stealing state secrets and bribery. The Chinese government has now issued an statement that they have hard evidence against the employees of the Rio Tinto present in China that they have endangered the economic prosperity of the nation by stealing their sate secrets. Rio Tinto has not been able to negotiate with the Chinese government who are unwilling to talk at present. The involvement of the one the high officials of the Rio Tinto has caused serious stirs in the company who are now poised for some strong legal action (Maiden, 2009). The company has also been driven to court o several occasions for the human abuses including war crimes, crime against humanity and discrimination. The company, while in Panguna copper mine Bougainville, caused a serious damage to the environment and the local people. They completely destroyed the landscape. In the process of defending itself against these crimes, Rio Tinto provided support for the military and the blockade of this island for several years. Therefore, Rio Tinto has suffered a serious blow to its image and faces strong litigation cases in near future (Davies, 2009).
Conclusion
The three companies: Nissan, Vestas and Rio Tinto are very different in terms of their businesses and hence have different parameters that affect them. They have been analyzed with respect to their future financial prospects and the environmental friendliness. The merits and demerits of all of three options have been identified.
Nissan has a very positive environmental impact on the society as a whole through its new electric car with no emissions and a fuel efficient vehicle. The government is now supporting this new electric car through its bills and indirectly supporting the Nissan. But the fact remains that Nissan will take a few years to return to its old financially strong position. On the other hand, Rio Tinto has been facing several serious litigations against it from various different governments including US and Chinese governments on crimes against humanity ad racial discrimination. It also lacks the strong financial position as its net earnings reduced by 65% for the half year. At the same time, Vestas has been working consistently for a greener planet providing the global world with the renewable sources of energy. The Government has also formed different bills that support the renewable sources of energy and indirectly Vestas in the long run. Although, the firm has closed down to factories causing protests but it has maintained strong financial prospects and is hoping for further acquisitions to strengthen its core operations.
Hence, I would recommend investing $100,000 in Vestas that has a sound financial track and is ecologically friendly.
Bibliography
Economist (2009), “Becalmed”, posted on The Economist.
Fouché, G. and Randerson, J., (2009), “Vestas confirms closure of Isle of Wight and Southampton factories”, posted on The Guardian.
Garnaut, J., (2009), “China’s tough stance fails as steel mills go it alone in pricing talks”, posted on The Sydney Morning Herald.
Heasley, A. (2009), “Nissan turns over a new, green Leaf” posted on The Age.
Reuters (2009), “UPDATE 2-Vestas Q1 tops forecast; to issue shares, cut jobs”, posted on Reuters.
Ueno, K. and Komatsu, T. (2009), “Nissan Rises in Tokyo After Displaying Electric Car (Update3)”. Web.