How to move Investment Capital to Sustainable Technologies

Upon reviewing an article from the WBCSD (World Business Council for Sustainable Development) and based on studies from the (IEA) International Energy Agency on the needs for energy in global development, one issue became crystal clear; that without investors feeling the need to move their funds toward Sustainable Technologies and Sustainable companies, there would be insufficient capital to keep up with growing global energy demand. While this causes a major problem for “developing” countries, it also causes a major challenge to move towards sustainable energy in “developed” countries. Note that I have added the quotes because, in a world that is being injured by much of the development we have experienced, one may question the long term efficacy of the whole notion of “development” as we currently know it. The term “Developed” in the fullness of time will more likely be something like “mature” and mature has a very different implication. What mature country would continue to destroy it’s own environment? Well, that’s a different topic so let’s move on.

In a quote from the report the author states that “Today private sector investments constitute the largest share (86%) of global investment flows and are expected to be essential to addressing climate change. A large additional flow of tens of billions of dollars will also be needed for adaptation.”

One of the most effective means of a government to weild it’s financial power is to influence the direction of Private Investment Capital. Rather than trying to “be” the investor as in many of the current government incentive scheme’s which directly invest, wouldn’t it be possible to take a different approach?

The challenge with moving huge amounts of investment capital to Greener Technology isn’t that these are bad investments, it is that most investors want secure returns. They are concerned about loosing money on risky, start-up ventures with unproven technologies. Yet, many of these start-ups, given sufficient infusions of capital would do just fine and would become the eventual market winners in a mature society. And given the current situation, we may only have a few years in which to reach maturity.

Due to lack of investor funding, Governments are forced to fund start-ups directly through Green Tech programs and provide incentives which infuse capital directly into Green Technology start-ups. But this rapidly drains the Government coffers and provides a very limited bang for the buck. Could the Governments instead create Green Technology Insurance programs which would provide some amount of relief to investors in the event that their chosen investment collapses? Since many will succeed with sufficient funding over a longer term, this approach might actually have the effect of providing the necessary security to investors and causing the infusion of sufficient private capital to help the company succeed. Mature investors already take advantage of put options and other hedging devices, but at a cost to them which makes investing in less mature technologies less interesting. And for the average investor, High Tech funds will not seem as interesting because of the issue of secure returns. And this is where Governments might step in to attract additional investment dollars. Obviously proper risk and cost / benefit analysis should be applied to take into account the maturity and potential long term benefits of the technologies.

For every government dollar spent on Green Technology Investor Insurance, hundreds or thousands of dollars of Investment Capital could be tapped. Certainly there would be a need to devise the approach in ways smarter than the AIG scheme of insuring investments without understanding the implication, but we also shouldn’t through out the baby with the bath-water. The fact that Financial institutions and Fannie and Freddy were essentially covered by Government also helped them to survive, albeit at a heavy cost. The concept of providing insurance to investment capital isn’t necessarily a bad one just one that needs to be carefully managed. Many proponents of market economy would argue that we should let badly run companies die. And in the case of mature companies, this is a fair approach. But fledgeling companies are a bit like babies. You have to nurture them and provide lots of love, protection and security. As in any market approach it would be better to see the Investors as the parents, and not the Government. But the it should be the Government role to encourage and assist the parents and provide them the means so that they can do the right thing. Does this have to be done through a branch of the Government? Perhaps not. Maybe a new role for AIG.

Is this already happening somewhere? Well all I can say is that I’m not aware of it so at best it isn’t being marketed as well as it might be.

Companies covered under such a scheme could, as the company grows and begins to generate profits, be required to pay back some of the insurance premiums offered to attract early investors. Other premiums could be collected in the form of incremental carbon taxation that would encourage companies to adopt these green technologies.

While there may be many others ideas on how to move investment capital, finding ways to move it would provide short and long term benefits for companies, investors and our world.

That’s it for now,

Garth Schmalenberg

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