Responsible Investor

Clean tech booms despite the bubble talk

Investor allocations soar, but research is key to finding the sectors that will match future political decisions on climate change.

Clean tech – shorthand for the renewable energy and environmental technology sector – is where investors see the prospect for returns in the battle against global warming, despite talk of an asset bubble as the prices of some companies soar. In listed equities, a record 15.2% – €4.6bn ($6.5bn) from just over €30bn – of the total sales of global pooled equity funds in the first seven months of this year poured into ecological and environmental funds, according to data provider Lipper Feri. The same sector won only 2.6% of the total collect for 2006 and just 0.6% in 2005. In the unlisted sector, investment is also breaking records. From January to September this year, $5.7bn (€4.2bn) was invested in the sector, according to Venture Business Research. This figure was already 50% higher than the total of $3.8bn for 2006.
As a result, new fund launches and successful private equity closes are monthly events. In September, Canadian investor services firm Criterion Investments launched its Global Energy Fund, advised by Pictet Asset Management. Criterion said the clean energy investment universe had a market cap of $1.4 trillion with expected capital flows of $70bn a year. Impax Asset Management recently announced a £100m fund-raising for a listed environmental fund while London-based Ludgate Investments listed a new environmental fund for pre-IPO clean tech firms.

Climate Change Capital, the London-based boutique investment bank, raised €200m for its first private equity fund targeting European companies in green power, transport, energy efficiency, water and waste, including money from Dutch pension funds PGGM and ABP and the UK’s Universities Superannuation Scheme. The fund took Climate Change Capital’s assets under management to over US$1.5bn in the sector. Investment banks have been allocating significant capital to the area while asset managers are working with both equity and debt partners on clean tech funds.
Returns are buoyant. The Nex Clean Energy Index, which tracks 88 companies listed on 25 exchanges worldwide, has risen by 94.7% since January 1, 2006, outstripping most global benchmarks. Investments range across a huge number of nascent sectors: biomass, small scale hydro-electric power, biofuel, solar and wind energy and related technology and service providers.
The logic for investment is clear. In recent weeks Sir John Holmes, the United Nation’s emergency relief coordinator warned that a record number of floods, droughts and storms around the world this year amounted to a climate change “mega disaster”. According to the best available science by the Intergovernmental Panel on Climate Change (IPCC), if the world continues as it is, the amount of carbon dioxide in the atmosphere could nearly triple by 2055.

Not a member? Register here »