September 21, 2006 11:20 AM PDT

Clean tech has investors' attention

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NEW YORK--A group of institutional investors announced on Thursday a combined investment of $1 billion over the past 18 months in clean technology, a fast-growing sector gaining corporate interest.

The Investment Network on Climate Risk (INCR), made up of state institutional investors such as pension funds, said that members have allocated money in a range of technology companies specializing in renewable energy, energy efficiency and biofuels.

The INCR disclosed that it achieved its $1 billion investment goal, first articulated last year, at the Cleantech Venture Forum, a showcase for clean technology investments held here this week.

The Pennsylvania State Treasury's office, an INCR member, has earmarked $90 million for clean technology, including a $40 million private equity fund and a reallocation of $50 million, said Keith Welks, special counsel to the Treasury office, speaking at the conference.

Welks said that Pennsylvania decided to reassess its risk associated with climate change stemming from global warming.

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Nicholas Parker,
chairman,
Cleantech Venture
Network

For example, corporations in which the state holds stock will likely have to deal with mandated carbon taxes in the U.S. in coming years, and agriculture firms could be affected by changing weather patterns, he noted.

"In light of these considerations, it's not a social good to be thinking about this (clean tech) space," Welks said. "As prudent investors, we need to think...how changes will have an impact, be a lot smarter and take a long view."

Other institutional investors here at the conference echoed Welks' comments, saying that clean technology represents an attractive investment category for both financial and social reasons.

Win Neuger, executive vice president and chief investment officer of AIG, said that the insurance and investment company has made clean technology part of an initiative around socially responsible investing.

AIG has built "green buildings" and now offers consulting services around reducing carbon emissions. It also has socially responsible funds, some of which invest in clean technology companies.

"The evidence is increasingly clear that any investor who fails to consider environmental, social and governance issues is taking risks that they are not accounting for," Neuger said. "Further, they're missing the upside potential of clean energy and carbon-reducing technology."

Neuger said that consumer-interest issues, such as environmental problems and labor abuse, are influencing the corporations they work for or buy products and services from.

"More and more people care. As investment managers, this creates investment opportunities for us to pay attention," he said.

Paying off?
Reflecting the growing interest in the sector, conference organizer Cleantech Venture Network issued on Thursday revised forecasts for venture capital investing.

Venture capital investment in clean technologies--which covers a wide range of areas, from renewable energy to water purification--is forecast to grow to $10 billion between 2006 and 2009 in North America, according to Cleantech Venture Networks. Worldwide, venture investments in that period are forecast to be $17 billion.

That compares with $6.4 billion in venture investments from 2003 to 2006, and $3.2 billion in the previous three-year period.

Cleantech Venture Network's chairman, Nicholas Parker, said that the technology sector is entering a period where investors will be looking not just for good technology ideas but solid financial returns as well.

Initial data indicates that returns are comparable with other technology areas, Parker said.

"Now that (government) policy, consumer and corporate drivers are coming together, subject to disruptions in the world economy, there will be good returns in the coming years," he said.

Mindy Lubber, the president of Ceres, a coalition of investors and environmentalists, said that understanding risks associated with climate change has reached "critical mass," and that is reflected in the institutional investor's decisions to consider clean technology.

"These issues have financial impact. (Institutional investors) are not grandstanders. They are not environmentalists. They're smart fiduciaries," Lubber said.

Despite the rising interest, the clean tech industry overall does face some challenges, Parker said.

There is an "absence of leadership" from the federal government to encourage clean technology development, he said. The industry also faces economic constraints from the overall economy, such as high steel prices restraining wind turbine production.

In addition, there is some growing concern that a clean technology may be attracting excess investments.

"Our view is that the category is not overinvested," said Parker. "There are a couple of areas getting a little frothy, perhaps, a little overexuberant."

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