Environmental technology (ET) refers to companies whose core business is the development and deployment of alternative energy, water treatment, pollution control and waste management. The terms “green” or “clean” technology are often used interchangeably with these types of businesses.
In Canada, ET accounts for more than 10,000 firms, 251,000 jobs and a $29 billion market (per Invest in Canada). Clean Edge’s Clean Energy Trends 2008 notes that biofuels, solar power, wind power and fuel cells are among the fastest-growing segments, with the global clean-energy market predicted to reach US$254.5 billion by 2017. Investors will drive growth, seeking returns from what may be the next big global industry and infrastructure shift. Consumers, too, will drive growth as concern for the environment increases and the cost of oil continues to rise.
ET Versus SRI
ET investment is similar to socially responsible investment (SRI), but the two are not the same. In addition to environmental concerns, SRI takes into account a number of issues such as human rights, labour issues and corporate governance. ET investment, on the other hand, captures a very specific market segment.
Also, while SRI has historically been an exclusionary investment strategy, ET investment actively seeks out companies that demonstrate strong financial performance, growth and sustainability while creating a cleaner environment.
Opportunities to Invest
Investors looking to get into the ET market have a few options.
Venture capital, private equity and public equity – Because many clean-tech companies are not yet publicly traded, venture capital accounts for a good deal of the investment set. Asset managers either have in place or can build funds for institutional clients to get them involved. For example, Teachers’ Private Capital has invested in Chrysalis, an energy venture capital firm with a portfolio of 18 clean-energy companies.
Index investing – Indexes capture some of the largest publicly traded companies in the industry. For example, the FTSE ET50 Index is made up of the largest 50 pure play ET companies by market capitalization. Benchmarking to an index allows investors to mitigate investment risk by capturing the market as a whole, rather than selecting individual companies. More indexing options will likely become available to Canadian investors in the future as more ET companies go public and fund issuers launch investable products based on ET indexes.
Sustainable Growth
According to data from Impax Asset Management, global environmental markets are growing at up to 30% annually, with revenues in excess of US$160 billion per year. Consumer demand and the need for new infrastructure to deliver ET offer opportunities for economic growth. The California Public Employees’ Retirement System and the California State Teachers’ Retirement System were among the largest and earliest plans to recognize this, investing US$200 million and US$188 million, respectively, in ET.
Canadian institutional investors have been slower to jump on the ET bandwagon, but some pension plans are beginning to get involved. The Ontario Teachers’ Pension Plan has committed $35 million to Railpower Technologies, a company that develops and sells environmentally-friendly technology systems for the transportation and related industries. And the Canada Pension Plan Investment Board has committed to investing US$200 million in Noble Environmental Power, a U.S. wind energy development and energy-operating company. Seeking sustainable growth opportunities, other institutional investors may follow suit as the industry continues to grow.
Jerry Moskowitz serves as president, FTSE Americas. jerry.moskowitz@ftse.com
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