Responsible Investor

Scientists recommend levelling off emissions until 2055, at which point emissions should be gradually decreased to the end of the twenty-first century. Alongside strong regulation, investment in clean technology will be crucial to achieving this. As a result, it will be a key driver of economic growth. For example, the IPCC believes future energy infrastructure investment to clean up existing energy plants, amongst other things, could involve decisions on US$20 trillion of capital by 2030. The United Nations has also published research recently which said that clean energy could provide almost a quarter of the world’s electricity by 2030. Today it accounts for just 2% of the world’s total, but the UN says 18% of all power plants under construction are in this sector. Many countries, such as those in Eastern Europe heavily dependant on Russian gas supplies for their power, see renewable energy as a growing means of self-dependency and national security. Investment in clean tech is no duck shoot though. It relies on correctly identifying the technology that will be supported by politicians pressed to find economically and electorally viable energy solutions. Controversy in sectors such as biofuel and ethanol production, where argument has centred on how much land can be realistically allocated to energy rather than food, as well as the environmental impact of clearing land for production, indicate the need for thorough research. Rising wheat and commodity prices have already pushed some biofuel focused funds into the red.
Wind power projects, among the best performers to date, are being tested by environmental controversy. Solar, the other top-performing clean tech segment, is experiencing

supply issues over the availability of polysilicon used in making photovoltaic cells.
Other fractious debates include the efficacy of clean-burn technology for coal, pushed by some as the answer to future oil shortages. In addition, market valuations of companies can be difficult to make when historical data is of little value, if, as many believe, we are at the start of a major energy revolution. Price to earnings ratios have risen to between 20-25 times for some companies in the clean tech area, prompting reminders of dot.com style hype, even if most are already cash generators compared with their internet predecessors.
Lux Research, a US-based consultant in emerging technologies has warned of a bubble in the clean tech energy. It said the value of global initial public offerings rose sharply from $1.6bn in 2005 to $4.1bn in 2006 and venture capital raised went from $623 million to $1.5 billion, primarily on solar and biofuel deals. Conversely, it said the air, water, and waste segments presented opportunities that were short of investment by comparison.
The prospects have not been lost on the relatively few pension funds so far committed significantly to clean tech as a source of future return. The recent €500m joint injection by ABP/PGGM to a private equity fund-of-funds via their jointly owned venture house, Alpinvest, was a watershed because PGGM announced it was part of its fiduciary duty to look at renewable energy bearing in mind its long-term investor status. Another pioneer, the Universities Superannuation Scheme (USS), started allocations to clean tech as early as 2000 when it invested in two funds with Merrill Lynch and Impax. The

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