Credit Crunch Shifts Green Investments Towards Energy Efficiency

"Now is the time for brave investors to make an investment looking for an upswing in three to five years." So says Eric Wesoff, a senior analyst at Greentech Media, to the Financial Times in their third and last volume of the FT Climate Change Series: Business, released on December 2, 2008.

In plain terms, Eric Wesoff argues that the business case for investing in green technology development remains strong, despite the financial crisis, as oil prices are still volatile and companies around the world will be looking to cut costs and reduce their footprint.

However, as Eric Wesoff also notes, some of these new green technologies are a long away from commercial viability. In the shorter term, energy efficiency shows greater profit potential and should attract the attention of clean-tech investors.

According to Peter Lintwaite, advisor to Carbon Trust Investments, energy efficiency is less capital intensive than alternative, undeveloped energy sources. "With energy efficiency, it's more akin to a classic technology play in the mobile telecoms sector," Peter Linthwaite told the Financial Times.

Avoiding a green business bubble

But what if, then, the short-term advantages shift clean-tech investors away from longer-term investments in more innovative, new green technologies?

To this, Eric Wesoff states that the credit crunch might even have been a good thing for the clean-tech investment environment, as the financial crisis is likely to sober the over-heated green market.

"In the irrational exuberance that goes a long with a bubble like this, a lot of technology is liberated from labs too early and it doesn't warrant being funded," Eric Wesoff says in the Financial Times article. "So there's going to be smarter investments – and that's probably the good news."

Avoiding a green business bubble by shifting investment focus from long-term technology innovations to short-term energy efficiency improvements might not be all bad for the environment, as improved energy efficiency promises significant carbon reductions. According to a McKinsey report from last year, improved energy efficiency in the U.S. alone could result in 1.3 billion tons less greenhouse gas emissions each year.

The long-term is still the longest

But even if energy efficiency takes a leading role on the venture capitalist agenda, investors like Peter Lintwaite and Eric Wesoff, will still naturally be drawn to long-view green-tech investments as well.

"Venture capitalists invest for the long-term," as Emily Mendell, vice president of strategic affairs for the National Venture Capital Association of Arlington, said in a recent interview with Investment News.