Like any other innovation, for Green technology to succeed in our society copious amounts of venture capital would be required. In many respects Green technology is still unproven and not ready for major influxes of capital. For many investors the long wait until returns are achieved provides a huge barrier to entry. Nonetheless, in 2019 Green venture capitalists invested $36 billion into climate change related technology – an amount that was more than double what was invested in 2015. What type of investor are we talking about when we speak of a Green venture capitalist?
Levels of maturity: The International Energy Agency (IEA) says that putting the Earth’s climate on a sustainable path can be achieved with a 25% emission reduction owing to existing, mature technologies such as hydropower. Another 41% will need to come from relatively new technologies that have not yet made major gains in the marketplace such as offshore wind electric generation. Another 17% will need to come from technology at both the demonstration or prototype levels (about 17% each) such as battery powered ships. This becomes a tall order for Green venture capitalists.
Deep pockets are required: Green technology investments are generally riskier than mature technological investments as some activities are still in the rudimentary stages of development. Forgoing returns and particularly dividends could sideline a number of investors who are retired and looking for stable additions to their incomes. Wealthy individuals such as Bill Gates have set up funds which cater to supporting Green venture capitalization.
Modernized financing models to support Green venture capital are emerging: When Green venture capitalism rose in the late 2000’s, lenders used more traditional financing models that were utilized by software developers. These techniques did not fare as well with Green companies that make more hardware products that took more time to perfect for entry into the marketplace. Consequently, with the help of the financial crisis of 2007-8, the boom era for Green venture capital turned into a bust. Numerous fledgling Green product manufacturers and designers weren’t able to survive setting back Green capital for several years. It was apparent that those traditional financing methods were not suitable for the uniqueness of Green technology.
Newer financing models were then developed. For example, a company named Plug Power makes hydrogen and fuel cell modules to provide clean power primarily to equipment that uses diesel engines such as forklifts. When the opportunity arose for them to provide Green energy driven forklifts for huge retailers like Amazon and Walmart, they needed substantial capital to meet the demand. They went to Generate Capital, a Green technology financier, and came up with a finance plan which involved servicing warehouses with hydrogen forklifts and using the proceeds of the service to pay off the loans.
Green innovation is becoming more diverse: The amazing success of Elon Musk with Tesla electric cars has drawn about half of Green venture capital into developing low emission motor transport vehicles. In 2004 Musk took a 14% stake in an electric-car manufacturer for about $6.5 million. It went public in 2010, and today it’s worth about $385 billion. Musk’s own stake is about $72 billion making it nearly as big as Ford and General Motors together.
But other areas of opportunity for Green innovation are growing as well. There are an increasing number of food products that utilize plant protein to replace animal protein. Software firms are developing algorithms that support the use of Green hardware, and make Green products less expensive and more accessible to marketplaces.
Not demand driven: Green products and systems that use Green technology are not always easily distinguishable from their non-Green competition. This points to the underdeveloped demand for Green technology inhibiting the marketplace for innovation. Bill Gates says that the demand side of the market is missing, pointing out that Green steel may be better for the environment, but it may not be a better product than non-Green steel, just more expensive.
Conclusions: Investors who are interested in Green technology should look into mutual funds that specialize in these types of investments. The benefits include managers and research departments who are in touch with all areas of Green technology and possess a vision of the future of the field. Even with this, the average investor should be patient when it comes to returns, and be diversified to protect the portfolio from losses owing to risky Green ventures that don’t survive.
Sources: Greenbacks for Greenery, The Economist, October 31, 2020
investing in green technology is a necessary but not sufficient condition as an approach to sustainability of our natural resources. just as important is a serious effort at population control. we MUST reduce the world population {currently about 7.5 billion} to about half of that.
A little scary that market forces will have a greater impact on saving the planet than will humans doing the right thing by reducing their demand for non-green energy and products.