Has the economic downturn deflated the Green Bubble?

November 24th - 2008 Oakland Posted in Portfolio management |

When money is scarce, only survival until the next quarter matters. This makes it a difficult time for green technology companies, especially those with a product proposition that still requires a long lead time to market. At the same time economic volatility threatens to change policy priorities of governments and could push the green agenda to the back. To make things even more difficult the already complex stakeholder interests also start shifting and the whole green agenda will head into disarray.

However, unlike in previous recessions, this time round climate change is widely accepted as a fact, and a real threat to the planet. This will make the need for moving towards a sustainable green economy a necessity and not a luxury of fat times.

Albeit news about global decrease of clean energy project finance by almost 25% in the third quarter to $18 billion, and forecasts of further decrease before the end of the year, (http://www.economist.com/business/displaystory.cfm?story_id=12562281), some long-term investors in green technologies are optimistic.

Bruce Pasternack, a partner at CMEA Ventures, is not deterred from green investments and considers such investments profitable in the long run (http://www.greentechmedia.com/articles/q-bruce-pasternack-5234.html). However, he mentions that a piece of advice they give to their portfolio companies, in the current economic climate, is to stick to the core technology and refrain from adventurous forays into the unknown. He believes, with frugality the existing strong ventures can be steered through the credit crunch, although it all depends how long the downturn will last.

In the current economic climate greentech will suffer from finance shortages, like any other industry. The rate of reductions reported above may well be in line with the general decline in investment in other new ventures. The important factor that will be crucial for the future of the greentech industry is not only the short term financial constraints but long term politics of climate change. However, keeping the green agenda on track in an turbulent economic climate is not expected to be easy, as described in an insightful article in the Economist online, titled “Fighting for the Planet” (http://www.economist.com/theworldin/displaystory.cfm?story_id=12494615).