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Financial Times: Power to the people

Green technology is now a necessity not a pipe dream, Investment Adviser
Apr 28, 2007

Green has never been a more popular colour for today’s savvy investors. Not so many years ago investing in the environment was something for the fringe: the preserve of long-haired, bearded men in woollen jumpers. Today the only long hair, beard and jumper in sight are those of Sir Richard Branson, who in late 2006 announced that Virgin group would be investing GBP1.6bn in renewable energy over the next 10 years.

The involvement of Branson, not to mention a whole range of corporate and institutional investors, is confirmation that the sustainable investment arena is now recognised as an area of huge opportunity. This is attracting seasoned investors from across the spectrum. Scottish Power and General Electric have pumped millions into wind power, as has Warren Buffet. BP and Shell are investing heavily in alternative energy sources, while blue chip names such as Boots and Marks & Spencer have committed to more sustainable packaging policies.

On the back of such attention, Clean Edge, a US-based green technology consultancy, estimates that the four core sustainable energy technologies of biofuels, wind power, solar energy and fuel cells were worth GBP20.5bn in 2005 – and could grow to a colossal GBP85.7bn by 2015.

Core sectors

Biofuels are produced from plant material and used as liquid fuel replacements for diesel and petrol in vehicles. Biodiesel comes from vegetable oils such as oilseed rape, while bioethanol comes from starch-based products, such as wheat or sugar beet. The EU has a mandatory target of 5 per cent of all road transport fuels to come from renewable sources by 2010. Allied to biofuels is biomass technology. This generates energy from specially grown crops, such as elephant grass or coppiced willow, or crop residues, such as straw.

The solar sector covers all technologies that capture energy directly from the sun. It is already a substantial market and cost reductions through new technologies should see it breaking into new areas of energy demand over the coming decades.

Clean technology includes fuel cells, regarded as the most likely successor to oil. These have the potential to produce unlimited supplies of clean energy with little practical downside. Often linked to fuel cell technology is hydrogen, which covers everything from the production and storage of hydrogen, through its distribution and the various technologies and applications for it.

There are several funds focusing on the sustainable investment sector, including products from Jupiter, Merrill Lynch and New Star. Generally, these are aimed at quoted companies operating in the international marketplace.

One alternative is to invest in unquoted UK companies operating in the domestic market. By being involved in companies from unquoted to initial public offering status, investors can benefit from the growth of a ‘hot’ sector – as sustainable investment appears to be. By the time most other funds are looking to invest, early-stage investors have already made their returns. They can also take advantage of the tax benefits through the Enterprise Investment Scheme.

Solid foundations

The boom in sustainable investment has drawn parallels with the hi-tech surge of the late 1990s. However, the drivers of the sustainable investment sector are considerably more robust – and more compelling.

Consumer and corporate demand, supported by EU and government directives, has created investment conditions that will handsomely reward the companies and investors that deliver green solutions to the market.

At a basic level, resource efficiency is simply about using the planet’s finite resources in a more sustainable manner, reducing the emissions of carbon dioxide and other greenhouse gases blamed for global warming. To promote sustainable investing, the government has introduced hundreds of regulations, initiatives and targets stretching decades into the future.

As Sir Nicholas Stern explained in his recent report on climate change, global warming could shrink the global economy by 20 per cent – a conclusion which spurred Tony Blair to affirm that: “We cannot wait the five years it took to negotiate Kyoto; we simply do not have the time. We accept we have to go further [than Kyoto].”

Bernard Fairman is managing partner for Foresight Venture Partners

main points

The involvement of a whole range of corporate and institutional investors is confirmation that the sustainable investment arena is now recognised as an area of huge opportunity

It is estimated that the four core sustainable energy technologies of biofuels, wind power, solar energy and fuel cells were worth $40bn in 2005 – and could grow to a colossal $167bn by 2015

The EU has a mandatory target of 5 per cent of all road transport fuels to come from renewable sources by 2010

The UK has the highest proportion in Europe of waste going into landfill

There are several funds focusing on the sustainable investment sector, including products from Jupiter, Merrill Lynch and New Star

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