How emerging markets are taking over in cleantech

While the emerging world is often considered a problem for global attempts to control or reduce carbon emissions, from an investment perspective it looks as if these countries may be currently offering more and better opportunities.

Greg Bright

According to a report by UK-based alternatives investment researcher Preqin, of an estimated $95 billion to be invested in the cleantech sector over 2010, about 45 per cent will be deployed outside the US and Europe.

China, for instance, long considered a prime culprit in the global warming issue, overtook the US last year as the world leader in cleantech finance, with an allocation of about $221 billion, or four times that of the US. China aims to build no fewer than 70 nuclear reactors by 2020. The rest of the world will build 15.

Interestingly, according to Preqin, most of the investment vehicles for cleantech around the world are still based in Europe or the US. However, an estimated 19 per cent of the investors for that 45 per cent of global projects are now also based in the emerging markets.

Almost half of the total cleantech investors on the Preqin database are either public pension funds or private equity funds of funds. Public pension funds with an allocation include Sweden’s AP-Fonden 2 and the US Chattanooga General Pension Fund. ING’s Australian fund-of-funds and Germany’s Berengberg Private Capital are also known to invest in emerging market cleantech.

Of the managers in the sector, 46 per cent are based in the US and 35 per cent in Europe.

The report says: “Environmental awareness, population growth and economic development are presenting cleantech investors with a wide range of investment opportunities in the emerging markets.

“As governments look to fulfil the power and infrastructure needs of their countries, even more opportunities are likely to emerge in these regions.

“Those already taking advantage of the investment opportunities in emerging markets are investing across the spectrum of the cleantech sector, committing to funds targeting renewable energy, natural resources, bio energy and ethanol projects.”

What the report does not discuss, however, is entry prices for new investors. The cleantech story is well-known and even though investors will see the long-term strategic attractiveness, they can rightly question whether prices are already too high.

If you add in an emerging markets factor to the overall theme, where share prices have generally been on the rise for just over 10 years, extra caution should be observed.

For those looking to invest now, the report lists several managers currently raising money.