This article begins an interesting four-part series on clean technology and its impact in today’s society. For some, clean technology is a passion. For others, it’s a commitment to their children and grandchildren. But for most of the players in the clean tech space, it’s about ‘doing good business,’ which includes making money.
Clean tech is broadly defined as knowledge-based products or services that improve operational performance, productivity or efficiency while reducing costs, inputs, energy consumption, waste or pollution. For example, clean tech includes alternative energies (such as wind and solar power), information technology, fuel cells, hybrid vehicles, biomass, biofuels, lighting and energy-efficient household appliances.
McCarthy Tétrault Notes:
It’s difficult to underestimate the impact and potential of clean tech. Venture capitalists are increasingly investing in this area, which is significant because these investments are leading indicators of future economic growth. Many large global corporations have or are developing sustainability plans. The World Business Council for Sustainable Development is a CEO-led council of 200 of the world’s largest corporations ranging from insurance to petroleum companies with a collective market capitalization of over $5 trillion. Traditional industry sector companies such as Alcan, Transalta, BC Hydro and Suncor, as well as Oracle and IBM from the information technology sectors, participate in the World Business Council. The purpose of the Council is to develop strategies and provide thought leadership in dealing with sustainability and climate change from a business perspective. In addition to venture capital (VC) and direct business investment, governments are developing policies and funding incentives at the federal, provincial/state and municipal levels to promote clean tech adoption and foster development of those technologies.
North American VC investment in clean tech has more than doubled in the past two years to $2.9 billion, which makes it the third-largest category after biotech and computing. GE alone intends to double its current clean tech VC investment to $50 million by 2008 — and these are just the investments by its VC group. GE’s bigger plan is to double its overall investments in clean tech and renewable energy to $4 billion by 2010. During the first quarter this year, $237 million was invested in alternative energy deals in the US alone. For those who are counting, this represents the lion’s share of this quarter’s VC investment in the clean tech category.
Investment categories go through a number of phases as they evolve. Current data indicates that clean tech is emerging as a defined investment category at twice the pace of biotech’s rise in the 1980s and early 1990s. With the combination of rising energy costs, overall natural resource scarcity, growing demand for environmentally superior products and greatly improved clean tech alternatives, clean tech may capture up to 10 per cent of overall venture capital flows by 2009. It may also capture an increasingly large portion of both M&A and IPO activity. A clean tech market index, called the Cleantech Index (CTIUS) and traded on the American Stock Exchange, tracks this sector and represents approximately $300 billion of market capitalization.
Clean tech investment is ramping up through VC funding, public markets and government incentives. This funding is being consumed primarily by new business opportunities and traditional businesses retooling, and all business interests are optimizing for predicted consumer and social change. New business opportunities are arising, mainly in technology-related areas such as renewable energy, alternative fuels, water treatment, power storage and conditioning, and demand-side management tools.
Sustainability is a key driver in how traditional businesses evolve their products, services and approach to doing business, such as innovations relating to energy and water usage improvement in oil sands extraction. Several other traditional businesses, such as financial institutions, are also taking on clean tech and sustainability principles. Citigroup has committed to spend $50 billion over the next 10 years to address global climate change, and this year, the Bank of America launched a 10-year $20-billion green plan. Even icons of the information technology industries, including Google, are exploring alternatives to reduce their global footprint by providing for alternative energy solutions for energy-intensive aspects of their businesses, such as server farms.
Sustainability is also becoming an aspect of corporate governance for directors and senior executives. Initially, the focus covers the areas of risk management, corporate social responsibility and corporate reputation. Rising public awareness and sustainability concerns are effecting changes in business practice in certain traditional industry sectors. Engaging local communities and obtaining the legitimacy of a ‘social license’ from that community is now becoming standard practice. The Canadian mining industry has played a leadership role in setting global standards in this area.
In this article, we focused on VC and capital flows into the clean tech space. In the next Technology Law Quarterly, we will discuss the impact of clean tech and sustainability in traditional businesses and on corporate governance.