If you're looking to bankroll a green-business revolution, boring old banks and the government are looking just as effective as flashy venture capitalists.
Tech investors from Silicon Valley to Shanghai are betting billions of dollars on breakthrough green technologies, with many hoping to repeat the success of Google or Amazon in the energy industry. It's a shift that has helped create the buzz around clean energy among entrepreneurs, politicians, and in industry.
But despite a lot of attention on high-risk ventures, experts say the financing engine for the clean-energy economy needs to be a hybrid, drawing on both venture capital and on more staid funding sources, many of which are hamstrung by the global capital crunch.
"Venture capitalists are critically important for starting new innovations and getting businesses incubated. But what hasn't happened to date is getting large-scale capital to help bring those businesses to commercial scale," said Bracken Hendricks, a senior fellow at the Center for American Progress think tank and expert on green jobs. "We need the policies and financial mechanisms to turn early start-up companies into global powerhouses."
Using a baseball analogy, venture capital is all about hitting home runs--one company could deliver 10 or 20 times the initial investment within five or seven years. To get that, venture capitalists traditionally seek out companies that have a proprietary technology that sets them apart from the pack.
But many businesses that create green collar jobs are not a clean fit with that high-risk, high-reward model. Although they still require financing, companies that manufacture wind turbines or do home energy audits, for example, don't require technology breakthroughs.
"If you care about investing in clean energy for job growth, venture capital may not be the way to go," said one investor who requested anonymity. "Government spending should be doing more to support service industries."
Government funding could, for example, be used to retrain tradesmen to retrofit commercial buildings to be more efficient, he said. Meanwhile, large-scale energy projects, such as a solar power plant, rely largely on bank-issued debt and, increasingly, government loan programs.
Running the numbers
There are signs that entrepreneurs and investors in the green-tech field are getting a better grip on how to finance their ideas. The key is to pull money from different sources at different stages, say investors.
Start-up Hara Software is betting that businesses need to get smarter about managing natural resources and carbon emissions even before regulations force them into it.
The Silicon Valley start-up on Monday is scheduled to come out of stealth mode after 18 months to announce the details of its software service which it designed for what its founder calls a "post-carbon economy era."
The 25-person company received $6 million in venture capital from Kleiner Perkins Caufield & Byers, where partner Al Gore played a role in getting Hara funded. It's the second software-focused investment after PC power management company Verdiem that KPCB has funded as part of a green tech push first launched in 2006.
The city of Palo Alto, Calif., is using Hara Software's program for developing a carbon emissions reduction program.
(Credit: Hara Software)The software also has a content database to share information on effective efficiency programs and green technology products that a company can use, explained CEO Amit Chatterjee, who left SAP to start Hara. Its product is now being used by about 12 organizations, including Coca-Cola and the city of Palo Alto, Calif.
Chatterjee argues that metrics related to the environment, such as energy consumption, water use, and waste, are often indicators of how well a corporation performs financially. Companies with sustainability programs tend to run efficiently, have a positive brand, and have minimized the risk from things such as environmental fines, he said.
"Businesses are now becoming unprofitable because of the way they manage natural resources," he said. "Now (managing) natural resources is a core element of a business' processes."
City planners at Palo Alto, for example, were able to cut out $2.2 million in expenses related to waste and energy use.
Niche business?
Once caps on greenhouse gases are in place, which will affect large corporations, then Chatterjee predicts there will be a "tidal wave" of attention in tools to mitigate carbon emissions. Statements from President Obama on the importance of climate change regulation drove some businesses seeking better tools to Hara, he said.
The American Clean Energy and Security Act of 2009, a bill making its way through the House, would impose a nation-wide cap on greenhouse gases and force heavy polluters, such as utilities, to report and lower their own emissions. The bill has a long way to go before becoming law, which would be next year at the earliest, and caps will be phased in over many years.
But even with the absence of a national carbon regulations, there is a growing number of software companies developing programs focused on helping businesses improve their environmental profile.
In a sign of consolidation among providers, SAP last month purchased Clear Standards, one of several companies young software companies with tools for tracking carbon emissions. Some focus on giving a very accurate picture of emissions and the impact of energy-efficiency programs, while others are designed for purchasing carbon offsets in voluntary or regulated markets.
The basic idea behind carbon regulations is to put a price on putting pollutants in the atmosphere. Within businesses, analysts expect that carbon will be treated as a commodity which financial planners will have to account for and track the price of.
Hara plans to sell its software to financial planners as well as business people responsible for purchasing energy and sustainability officers. Chatterjee said the company seeks to differentiate itself from others by tracking a number of environmental attributes, not just greenhouse gases and energy use.
There are already many programs, called Environmental, Health and Safety software, to help companies comply with environmental regulations. What remains to be seen is whether the latest generation of software focused on climate change abatement will be used for a relatively narrow function, such as energy procurement, or for more strategic initiatives.
Chatterjee said Hara's software is designed to be flexible so that companies can manage relatively straight-forward initiatives, such as fuel reduction, and make plans for deeper changes with the company, such as adopting on-site renewable energy or developing new products.
"This is not another ERP package. Because the business is changing, you want something that is flexible, not something institutionalized," he said.
Google, a company that runs power-hungry data centers, employs thousands of people, and operates a corporate jet, said on Wednesday that it was carbon neutral for the past two years. How so? Offsets.
The idea of a carbon offset is to compensate for the greenhouse gas emissions of a company or person by investing in a project that reduces emissions from the atmosphere.
Google sees offsets as an imperfect method for lowering their total carbon footprint, among other efforts. To detractors, offsets are essentially greenwashing when companies do little more than buy offsets to meet their environmental sustainability goals.
There are many routes an offset purchase can go: wind energy farms, siphoning off methane from landfills, or making buildings more energy efficient. There's an entire industry around offsets, which can be voluntary--as Google has purchased--or regulated in countries that have climate change regulations.
Without offsets, a company--no matter green--would have a hard time claiming to be carbon neutral simply because energy consumption means pollution. Achieving carbon neutrality is complicated by the fact that there isn't universal agreement on how to account for a company's carbon emissions: should it include just a company's operations or also its supply chain and end use of its products?
Even hard-core climate activists see offsets as problematic. Climate advocate Joseph Romm, who writes for the Climate Progress blog, calls them "rip-offsets."
The problem ultimately comes down to how effective offsets are in actually reducing emissions, he says. Offset claims are very difficult to verify, and doing a lifeycle analysis of an offset project--what is the exact net reduction of a landfill methane project?--are very easy to fudge, according to Romm.
The U.S. Government Accountability Office last August published a report saying it's particularly difficult to ensure "additionality." In other words: does a purchased offset truly represent an greenhouse gas reduction above and beyond business as usual. For example, some offsets were tied to a company that was already forced to capture methane to meet existing environmental rules.
Where's the beef?
So is Google being cavalier (or worse, disingenuous) by purchasing carbon offsets? It's impossible to say exactly what its motives are, but it's clear people there have thought this question through.
In a post on Wednesday, Google Green Energy Czar Bill Weihl said that the search giant's efforts to reduce data center energy consumption and to advocate for renewable energy were the meat of its climate mitigation activities. Offsets were done to reach neutrality, "not as a substitute for real action."
In addition, the company took the step to verify through a third party that the offsets were "additional," or projects that were done above business as usual.
Judged by non-governmental organizations such as ClimateCounts, Google is a leader in climate change in the Internet industry. It was outscored by companies in other industries, but Google gets points for actually measuring its carbon footprint and taking steps to reduce it.
Google.org has invested in a number of renewable energy companies in solar, wind, and enhanced geothermal. It has a plug-in electric initiative fueled by one of the largest corporate solar arrays at its headquarters. And it's nudging into home energy monitoring software while it lobbies for energy policies to support renewable energy and smart-grid technology.
In his post, Weihl summed up Google's view on offsets:
"The best way to reduce our corporate footprint is to not use electricity in the first place. Google will continue to reduce our emissions directly by building and designing some of the world's most efficient data centers as well as using on-site renewable energy to power our facilities. Over the last five years, we have eliminated over half the emissions we would have produced in the absence of these critical measures. Offsets serve to neutralize the rest. In the future, we will continue to drive for improvements in energy efficiency and to find affordable sources of renewable energy," he said.
Obviously, a large technology-intensive enterprise like Google will have a far heavier footprint than many other businesses. Even though it's not giving out a specific number on total emissions, Google appears to be doing a rigorous accounting, including everything from electricity to employee travel and server manufacturing in its total footprint.
And unlike most companies, it's done the math on offsets as well. Offsets will likely continue to be controversial, but at least Google isn't shying away from the debate and is confessing to the flaws of carbon offsets.
In a sign of "green" going mainstream, an IBM survey of CEOs finds that socially oriented customers are wielding more power, aided by social networking on the Web.
The survey, published Tuesday, drew on face-to-face interviews with 1,130 CEOs around the world. It found that CEOs feel less prepared as they would like to deal with the pace of change.
The first is the information omnivore, the type of consumer who is comfortable making his or her opinion known through Web-based tools like social networks.
CEOs said that these proactive consumers, or "prosumers," can be a positive influence if companies can design products based on consumers' expressed preferences.
In addition to being demanding about products, customers are carefully watching corporations' behavior, the study found.
Expectations for corporate social responsibility are rising. Concern over environmental issues has doubled over the past four years, with most of that reflected in Europe and in the Asia-Pacific region.
CEOs said they will increase investments 25 percent over the next three years to better understand socially minded customers, which chief executives identified as the fastest-growing trend.
IBM itself primarily serves large enterprises, rather than selling directly to consumers. It does an annual survey of CEOs to find direction on their business directions and how they intend to sell to their customers.
In the area of clean tech, IBM has a number of initiatives including data center energy efficiency and reducing waste from silicon solar cells. IBM also has a decades-long corporate social responsibility practice.
There is real money behind the claims of corporations "going green," but consumers still need convincing that it's more than just feel-good PR, a couple of recently released studies show.
Nearly every day seems to bring fresh news of corporations boosting their commitment to the environment, either through internal energy-efficiency measures or plans to introduce green tech products.
In a report released on Wednesday called the State of Green Business, consultant and writer Joel Makower and his colleagues from Greener World Media say that businesses are making progress in addressing environmental problems, such as climate change or toxic waste.
But those efforts don't appear to be enough to sufficiently reduce greenhouse gas emissions or meet other environmental targets.
"Companies are getting cleaner and more efficient, but only incrementally, and many of the gains are offset by the ever-growing economy. So, while greenhouse gas emissions per dollar of economic activity may be dropping, the growing economy means those emissions are largely unchanged," Makower wrote.
Still, more and more companies are recognizing that pursuing environmentally aware policies does not necessarily conflict with a corporation's financial goals, he said.
Separately, Allianz Global Investors published another in a steady stream of reports from investment firms singling out business opportunities from climate change.
Allianz, however, surveyed consumers as well and found that there is a strong desire to find socially or environmentally conscious ways to invest.
Out of over 1,000 investors surveyed, almost half said they were likely to invest in a company or mutual fund with an environmental component to it. Seventeen percent said they already have made that sort of investment.
But the survey also uncovered some mistrust of corporations' claims. Seventy-eight percent said that most companies today are choosing to focus on environmental issues for public relations, rather than financial, value.
The State of Green Business study also noted that "greenwashing" has become concern among consumers
Yet despite any consumer skepticism, businesses' commitments to green technology and products are expected to rise, as they seek to capitalize on environmental problems and appeal to consumers' desire for greener products.
"Environmental products and services are moving from the realm of corporate social responsibility or niche activities to core businesses that will generate significant future revenue stream," Bozena Jankowska, lead portfolio manager of the Allianz RCM Global EcoTrends Fund, said in a statement.
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