Clean Technology
The Clean Technology (Cleantech) opportunity set ranges from investments in alternative and renewable energy to biodegradable plastics, advanced material solutions for fuel cells, environmentally friendly pesticides and other ‘clean’ products or technology solutions.
The Cleantech Network groups the opportunity set into eleven segments:
The Cleantech sector is a critical component of a comprehensive environmental strategy and is comprised of investments that typically focus on the long-term growth potential of nascent technologies and operational processes that stand to benefit from regulatory, economic and/or social trends. In general, Cleantech companies have a higher than normal beta relative to the overall market. For example, in January 2008, the Ardour Global Cleantech Index, a global index that tracks clean technology companies, declined close to 30% versus a 10% decline in the broader equity market. This high beta response to general market volatility highlights the need for a long-term investment perspective as well as diversified exposure. Alpha in the Cleantech market has historically been driven by a combination of oil prices and environmental regulation, with the latter likely to dominate going forward. However, there is an inefficient distribution of information about each of the drivers and their effect on different economic sectors within the Cleantech space. Accordingly, certain market risks and opportunities associated with these drivers have not been fully and accurately priced in current valuations. Savvy investors can take advantage of the future growth in this sector in two ways. First, investors will need to identify and focus on long-term Cleantech growth themes and the linkages between those themes and various industrial sectors. Second, investors will need to identify specialized managers that have the required market intelligence and understanding to exploit Cleantech growth themes by identifying viable technologies and their impact on various economic sectors and companies