Cleantech reminder: It’s about the money, baby
Nick Parker, co-founder and chairman of the Cleantech Venture Network, is profiled in the New York Times (via CNET’s News.com) today talking about the rising interest in the “cleantech” sector and how this shouldn’t be confused as a treehugging trend. The piece also touches on how companies are starting to rebrand their products “cleantech” so they can take advantage of the flow of investment going into the area. What Nick, and I think others, are concerned about is a backlash against the whole term cleantech. The buzz and hype is nice, but only to an extent. The bottom line, emphasizes Nick, is exactly that: the bottom line. The associated environmental benefits may boost the business case, but they’re not the foundation for it. This sector is about business fundamentals and real economic drivers.
Environmentalists may criticize this approach, but the fact remains if you want to get businesses to embrace a more sustainable way of operating and convince consumers to adopt a more sustainable lifestyle you’ve got to go back to basics: Will this lower costs/monthly bills? Will this improve operational efficiency? Will this lower risk? Will this give me an edge over rivals?
If a clean technology can answer YES to any of the above questions, then the hype and investment around it is justified. If it can’t, then it may not be that different than all those dot-com companies that bit the dust after their 15 minutes of undeserved fame.
Tyler Hamilton is senior energy reporter and columnist for the Toronto Star, Canada's largest daily newspaper. In addition to this Clean Break blog, Tyler writes a weekly column of the same name that discusses trends, happenings and innovators in the cleantech market. This blog is a personal project started in April 2005. It is not an official blog of the newspaper. Tyler can be reached at tyler@cleanbreak.ca
August 26th, 2006 at 6:42 pm
Hi Tyler,
Interesting commentary. Would you be willing to please clarify two points:
1.) What are the business fundamentals that you’re referring to?
2.) What are real economic drivers?
On my first read it seems like you’re trying to distance cleantech from the environmental movement. If so, it’d be valuable to know exactly what you think the cleantech sector is about.
Is it net revenue? Market share? Net income? I’m curious to know what you think. Thanks!
Jeff Osborne
August 26th, 2006 at 8:01 pm
I have heard this point of view a lot over at ecoIron, that the new wave of green sweeping across the world is all about money. I don’t disagree there’s big potential here, and certainly ‘money’ is a obligatory word to throw out to VC investors. Nick is just being a good salesman.
Sustainable business objectives usually try to hit the triple bottom line of economic viability, social responsibility, and environmental impact. Almost by definition, this is what cleantech is (why else use the word?) Ultimately cleantech is about business, not money, and that is where it will succeed or fail.
August 27th, 2006 at 9:10 am
Nothing magical. Improving operational efficiencies, lowering fuel/energy costs and thus expenses. Eliminating regulatory risk — i.e. the risk of non-compliance. Improving a company’s image and creating product awareness through “green” marketing, which can ultimately increase revenues. Gaining competitive advantage over rivals. In other words, not buying into this technology because of the “feel good” nature of doing so. Many companies that consider themselves cleantech don’t overly rely on government subsidies and incentives to sustain their business long term. In the case of solar, for example, their aim is to be truly cost-competitive with conventional energy generation and fuels.
So yes, this is positioning cleantech away from the environmental movement, because the early environmental movement — I’m clearly generalizing here, so apologies in advance — believes business should adopt these technologies and practices out of the goodness of their heart, or that government should force business to act certain ways. Cleantech is about creating a business case so businesses will move in that direction voluntarily — because it makes good business sense. This is not to say that the environmental movement doesn’t support this approach, as I know many environmentalists and groups who see the importance of getting companies to voluntarily embrace clean technologies as part of the larger solution.
As for economic drivers: rising oil and energy costs, rising public concern over global warning, state or regional competiveness, peak oil concerns, favourable government policy, etc…
Hope that helps.
August 27th, 2006 at 9:28 am
Saw the yogurt bomb comment… fair enough.
But who are Nick’s clients? Venture capitalists. I agree whole heartedly that end users of these clean technologies, and the entrepreneurs making them, adhere to that triple bottom line philosophy. And yes, some of the VCs are more than happy to wave the social responsibility flag, but having been to a number of venture capital conferences, I think I can say with confidence that for a large portion of the VC community it is, purely, about money. But you’re right — cleantech, greentech, sustainable tech, environmental tech, whatever you want to call it, it’s there and being developed toward a more positive environmental end. I think what Nick’s just saying is that to raise money for that technology, it can’t stand on that environmental record alone. You need a business case, and without one you truly do follow the path of dot-com wreckage. I think Nick’s just trying to prevent the “cleantech space” from overexposure and overhype.
August 27th, 2006 at 9:32 am
I should clarify that this is how I think we can get businesses and consumers to embrace these technologies/products/services en masse. Personally, I’m willing to pay a premium and take a loss for the environmental benefits. I don’t own a hybrid or have solar or geothermal heating/powernig my home — yet. I plan to, soon. But I may not be representative of the larger population, and an impact won’t truly be made until the conditions for that mass participation are there.
August 27th, 2006 at 11:29 am
This is a very simplistic view but I see VC’s as people leaning on the great big market beside them. If the market decides to move over there, then the VC’s will shuffle over and begin to lean again. The market’s moving, thanks in part to the forces of those VC’s leaning in the same direction, -are they so much pushing or are they chasing it? Both. I don’t think it matters much what the VC’s intents are, as long as the market’s rolling in the right direction, albeit zig-zagging along. The nature of the force, green or greed, seems secondary, and too difficult to determine anyway. It won’t be fair, and good attempts will be squashed amid the magnitude of what we are trying to do.
August 27th, 2006 at 11:36 am
Agreed… the end result is all that I care about. I understand how the headline of the post may seem, well, inappropriate, but it’s a narrow look at the term “cleantech” as part of the larger issue of sustainability.
August 27th, 2006 at 12:41 pm
Thanks for reading, I like to blend a laugh and a tear at ecoIron without being too critical. I just can’t see any business being solely about money – they say it’s all about money, but to me it’s about analyzing the business landscape and turning a profit. Look at RoHS, it’s real, it’s happening. Palm pulled their Treo 650 from Europe because they can’t sell it there. Look at Walmart, they’re money grubbers right? Kicked out of all of Germany because citizens can’t stand their social responsibilty record. Now they’re on a sustainability kick too. To me it’s a three legged stool, not a one legged table with two short legs hanging off of it.
August 27th, 2006 at 12:52 pm
Hey, we’re in agreement. The term “cleantech” has been used by the Cleantech Venture Network to promote an investment category. All I’m trying to say it that the money-making criteria is the top concern of VCs — an obvious conclusion. Wal-Mart and others see it as a way to lower costs while taking advantage of the benefits of green marketing. But like any corporation, whether it’s trying to access Germany or needs to comply with RoHS, it’s doing so as response to some cost-benefit analysis. If it’s worth their while they’ll do it, and that means somewhere down the path of a complex analysis it positively affects their bottom line.
September 2nd, 2006 at 5:49 pm
Hey thanks for the thoughtful answers. They’re very helpful.
It’s interesting to see how the early environmental movement is being used as a straw man in this story; while at the same time the strategies being referenced are straight from Rocky Mountain Institute circa 1978.
I’m interested in advancing the understanding of the business case. We agree about Cleantech. We probably agree about the political efficacy of the Cleantech industry distancing from perceptions tied to early environmentalism. The engineers and techs I know in the Cleantech biz are certainly happy to do something good, but they’re not unpaid activists. They might hug trees… Don’t ask don’t tell.
One of the stronger “business case for sustainability” arguments is related to increased short term access to capital. Many cleantech businesses have more leverage in negotiating for capital because they can pitch their plan to (A) traditional VC’s, and (B) social minded investors. SRI funds have grown very fast in the past decade. Is this potential advantage helping cleantech CFO’s structure more attractive deals than their conventional energy sector counterparts? If so, I wonder to what extent? In a cleantech capital market like we have now, is it a material advantage?
Thanks again for hosting a good discussion.
Jeff Osborne