Study: Investors Should Expect Growth of Clean Tech Private Equity

(June 22, 2011) — Clean tech private equity investment is expected to surge, according to a study by Switzerland-based asset manager SAM.

Its study — titled ‘Clean Tech Private Equity: Past, Present and Future’ — shows that the clean tech energy industry is poised to continue earning above-average growth. The drivers of that growing demand, the asset manager says, includes profits for higher cost competitiveness compared to conventional energy sources coupled with robust investor demand for clean energy solutions.

The report states: “Moves toward a more sustainable use of resources and energy have gained momentum, and several countries have assumed a pioneering role in this effort, often facilitated by incentive schemes. However, investors remain reluctant to invest in what they regard as a heavily subsidized industry.” Yet, the report also notes that clean tech sectors will gradually become less dependent on government subsidies, which could benefit private equity investors.

SAM’s study references a recent report by Mercer, which worked with 14 major institutional investors to conclude that over the next 20 years, the uncertainty surrounding climate policy and associated adjustment costs can contribute as much as 10% of the portfolio risk of a typical asset mix. According to Mercer, renewable energy-related private equity and infrastructure as well as venture capital and buyouts focused on low-carbon solutions and efficiency can help improve portfolio resilience.

Without a doubt, institutional investors around the world have been more aggressive in keeping clean energy factors in mind when making investment decisions, Mercer Consulting’s Craig Metrick  told aiCIO earlier this year. But, while there has been a greater recognition globally to reduce emissions, the United States is still lagging behind Europe, largely due to the less supportive regulatory environment in the US. According to Metrick, Principal and US Head of Responsible Investment for Mercer, one of the reasons that US institutional investors have not been as aggressive in investing in renewable energy compared to their European counterparts is because of a lack of legislation. “In Europe, there are certain regimes for reducing carbon emissions, fostering a better legislative environment, whereas the debate on climate change and renewable energy has been very politicized in the US,” he said. Nevertheless, Metrick acknowledged that the consultancy’s clients are generally investing more heavily in renewable energy and clean tech through private equity funds.

Adding further heft to the SAM’s findings, an additional survey conducted by Mercer and released June 13 — which studied pension funds, foundations, and investment managements firms — revealed that the majority of respondents saw global climate change as both a potentially significant investment risk and as an opportunity. Overall, the survey found that 98% of pension funds and foundations and 87% of asset managers believe that global climate change poses risks but also offers opportunities. It also found that 57% of pension funds and foundations and 80% of asset managers make specific reference to climate change risk in their investment policy.