What Is a Green IPO?

A green initial public offering (IPO) is a release of shares to members of the general public from a previously private company that develops or makes environmentally friendly products. Many such IPOs involve green technology, like production of components used in alternative energy. Other companies with environmental missions may qualify for listing as green IPOs because of their business missions and practices. Such events may be eagerly anticipated among investors, especially when activity in the environmental sector is robust.

Companies engage in initial public offerings to access capital they can use to expand operations or fund new initiatives. In a green IPO, a company that makes a product or component used in green technology and related industries goes public to raise capital. It may mine for minerals used to make batteries, solar panels, and similar equipment, for example, or it could develop wind energy. Such companies can be hot investments because they often qualify for government subsidies and other assistance. They are also growth industries, as consumer demand for green products consistently rises over time.

A company preparing for a green IPO needs to look at similar companies with planned IPOs of their own. If companies glut the market, all their stock values may fall, depressing their value. Instead, they need to time offerings to work with each other. The market can be cyclical in nature as companies initiate the filings necessary to start an IPO and then wait for the best time to set their offering dates.

Some companies may offer a green IPO very early in start-up phase, when the company has relatively low value. Valuing a green IPO in such cases can be tricky, as the company may not have assets or a track record underwriters can use to determine a fair price. The underwriters may consider the value of similar companies along with projects a firm has in development, such as patentable inventions that the company needs more money to develop. Such firms can contribute to investment bubbles, where investors pay for shares in companies and drive the market up, only to have those companies fizzle out, popping the bubble as they fail.

Investors with an interest in a green IPO can check financial publications for speculation on pending and planned IPOs. Such publications usually provide overviews of companies as they prepare to go public, and offer advice to investors on whether shares would be a good buy. Investors may also want to discuss their options with a personal finance adviser.