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Why Cleantech Investors Haven't Panicked

The short-term blowback from the global financial panic has been pretty logical: A flight to value and safety and reallocation of assets to deal with longer-term risks of the new economy. So what does this mean for cleantech investing?
by Mindy S. LubberHarvard Business Review Posted on Oct 30, 2008

The short-term blowback from the global financial panic has been pretty logical: A flight to value and safety and reallocation of assets to deal with longer-term risks of the new economy. So what does this mean for cleantech investing?

"Everyone is in shock about what the new world is going to be," V. John White, executive director of the Center for Energy Efficiency and Renewable Technology, told the New York Times. "Surely, renewable energy projects and new technologies are at risk because of their capital intensity."

While it is true that the short-term panic means an interim dry-up of financing, the same can be said for nearly all venture capital, private equity, and even public equity. But the fear that cleantech projects may take a back seat to economic recovery efforts ignores the fact that cleantech is still being embraced by many forward-thinking U.S. companies and investors -- and may just be the driving force behind economic stimulation.

Both presidential candidates are supporting job creation and have emphasized the role clean technology can play. But even more important, smart investors and companies are already there.

Bill Gates is one of the $100 million in investors for algae-based fuel technology company Sapphire Energy. T. Boone Pickens has over one million signatures on his Pickens Plan petition, and is investing $10 billion to build the country's largest wind farm. Even Warren Buffet is seeing long-term value in General Electric by investing $3 billion in the world's leading manufacturer of wind turbines, energy-efficient hybrid locomotive engines and other eco-friendly products. The bottom line is that these investors are not philanthropists; they recognize these as money-making opportunities in the long term.

Clean energy is also an excellent hedge against long-term downside risk. Despite extreme turbulence in the short-term, carbon emission limits, public sentiment and climate change itself represent significant financial risk to every company's bottom line. The risk of increased regulation, combined with volatile energy prices for oil and other fossil fuels, all favor clean energy in the future -- and in some cases, already do. The City of Houston, for example, is currently using wind-powered electricity for about a fourth of its municipal power needs at
a significantly lower price than it is paying for power produced from coal and natural gas. We can expect more such examples in the future as renewable energy projects achieve larger economies of scale, bringing their costs down even further.

Mark Fulton, global chief of climate change investment research at Deutsche Asset Management, said it best last week:

"The current crisis is making the necessity of tackling climate change an opportunity to stimulate growth through investment opportunities. Encouraging investment in renewable energy is a key focus. Energy efficiency technologies are obviously highly desirable in economies facing recession. Infrastructure stimulus can be tied directly to climate-sensitive sectors such as power grids, water, buildings and pubic transport which present a vast field for the creation of new technologies and jobs."

Deutsche is positioning itself to ride the green technology wave -- are you?

Mindy S. Lubber is president of Ceres, a leading U.S. coalition of investors, environmental groups and other public interest organizations working with companies to address sustainability challenges such as global climate change. Lubber also directs the Investor Network on Climate Risk, a network of 65 leading investors with collective assets totaling $5 trillion focused on the financial risks and opportunities from climate change.

Read the post at Harvard Business Review

Meet the Expert

Cynthia McHale

Cynthia McHale is the Director of Ceres' Insurance Program. She brings over twenty years of sector expertise working with many of the leading North American and European insurers, re-insurers and industry brokers. In her current role, Cynthia is leading a campaign to promote the insurance industry’s understanding and leadership on climate risks and opportunities. As risk managers, risk carriers and major institutional investors, insurers have a vital interest, and play an important role in fostering society’s response to global warming. Stronger insurance industry leadership on climate change issues will strengthen and accelerate our nation’s transition to a clean energy future while helping to build a resilient and sustainable society.

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