By Neal Dikeman
Cleantech, also referred to as clean technology, and often used interchangeably with the term greentech, has emerged as an umbrella term encompassing the investment asset class, technology, and business sectors which include clean energy, environmental, and sustainable or green, products and services. (See various definitions below.)
The term has historically been differentiated from various definitions of green business, sustainability, or triple bottom line industries by its origins in the venture capital investment community and has grown to define a business sector that includes significant and high growth industries such as solar, wind, water purification, and biofuels.
Cleantech was popularized in large part through the work of Nick Parker and Keith Raab, founders of the Cleantech Venture Network (now Cleantech Group) from 2002 onwards. It began as a term to describe the “green and clean” technologies, especially including solar, biofuels, fuel cells, water remediation, and renewable power generation, that venture capital investors were turning to in increasing numbers as the next trend in technology investing after the collapse of the tech boom in 2001. The Cleantech Group developed and operates a popular conference series and investor membership organization for the category. They registered or acquired a large number of the cleantech related domain names and a number of cleantech related trademarks, though no trademark exists for the term cleantech itself. The initial target of the conferences were venture capitalists and startup companies operating in sectors covered by the term. Since then the term has come into wide use in the media, broader investment community, and many of the underlying industries that make up the umbrella sector and has spawned numerous conferences, websites, magazines, indices, newsletters, and companies. Cleantech has now grown into the third largest venture capital investment sector behind IT and biotech.
While no one person or organization is generally credited with coining the term for its current purpose, besides the Cleantech Group, attribution is sometimes also given to energy technology consultancy Clean Edge, whose principals include green business journalist, author and speaker Joel Makower, and Ron Pernick and Clint Wilder, authors of the 2007 book Cleantech Revolution. Before it’s popularization as an investment asset class and technology category, “cleantech” as a word typically referred to dry cleaning or cleaning supplies equipment, as evidenced by the fact that many cleantech related domain names are still owned by companies in those fields.
The sector and the term came into its own in the 2005 and 2006 time frame, when mainstream institutional investors, led by CalPERS and CalSTRS, began allocating investment into venture funds in the environmental, alternative and renewable energy sectors, and adopted cleantech as a term of choice for the description of that asset class, lending credibility to the sector. 2005 also saw the emergence of blogs dedicated to following the sector, the earliest of which included Clean Break by Canadian journalist Tyler Hamilton, Cleantech Blog edited by merchant banker Neal Dikeman, and Cleantech Investing (since acquired by Greentech Media), written by venture capitalist Rob Day, which helped to proliferate the sector and the term. But possibly most significant, the 2004 to 2006 time frame saw the emergence of financial and capital markets successes in the solar, wind, and ethanol industries that make up large portions of the various cleantech related stock indices, driven by changes in policy incentives and fuels standards in the U.S. and Europe. Other factors attributed as major drivers in that time frame include rising energy and commodity prices, increased consumer awareness of sustainability issues, and the start of the Kyoto Protocol based carbon trading mechanisms. The combination of these events began to attract significant amounts of capital and awareness to the sector.
Definitions of what is included in cleantech vary among among industry participants, but the most cited definitions of cleantech would certainly include the running definition in Wikipedia and the definition provided by the Cleantech Group.
From Wikipedia:“Cleantech or clean tech is generally defined as knowledge-based products or services that improve operational performance, productivity or efficiency while reducing costs, inputs, energy consumption, waste or pollution. Cleantech is differentiated from green technology since it generally refers to the emerging financial industry (as opposed to the actual technology in which the industry invests). Specifically, the investment focus includes water purification, eco-efficient production techniques, renewable energy, green technology, and sustainable business. Since the 1990s, the financial community began more active interest and investing into the Cleantech space.”
The definition on Wikipedia has changed since this 2007 version. The Cleantech Group also developed within their own definition which includes a market segmentation and taxonomy of what sectors was included in the the cleantech sector. This version has served as a reasonable proxy for an official definition: “Clean is more than green. Clean technology, or ‘cleantech,’ should not be confused with the terms environmental technology or ‘green tech’ popularized in the 1970s and 80s. Cleantech is new technology and related business models offering competitive returns for investors and customers while providing solutions to global challenges. Where greentech, or envirotech, represents the highly regulatory driven, ‘end-of-
pipe’ technology of the past (for instance, smokestack scrubbers) with limited opportunity for attractive returns, cleantech addresses the roots of ecological problems with new science, emphasizing natural approaches such as biomimicry and biology. Greentech has traditionally only represented small, regulatory-driven markets. Cleantech is driven by productivity-based purchasing, and therefore enjoys broader market economics, with greater financial upside and sustainability.
Cleantech represents a diverse range of products, services, and processes, all intended to:
- Provide superior performance at lower costs, while
- Greatly reducing or eliminating negative ecological impact, at the same time as
- Improving the productive and responsible use of natural resources.
Cleantech spans many industry verticals and is defined by the following eleven segments:
Water & Wastewater
Air & Environment
Recycling & Waste.
A few other definitions are worth noting:
Matt Marshall in Venture Beat commented a couple of years back on Dow Jones VentureOne’s definition of cleantech, which defined as: “Because of the significant level of attention being focused on cleantech, VentureOne’s research department adopted a strict methodology for categorizing potential companies in this new industry. They were defined as companies that directly enable the efficient use of natural resources and reduce the ecological impact of production. Areas of focus include energy, water, agriculture, transportation, and manufacturing where the technology creates less waste or toxicity. The impact of cleantech can be either to provide superior performance at lower costs or to limit the amount of resources needed while maintaining comparable productivity levels.”
And of course that means that Thompson Reuters and the National Venture Capital Association jumped into the game in 2008: “To enable more precise reporting on clean technology companies, Thomson Reuters has newly implemented a specific ‘clean technology’ flag for the portfolio company database. Using the definition that clean technology investment focuses on innovations which conserve energy and resources, protect the environment, or eliminate harmful waste, transactions are coded by the data team and reviewed by the QA team for whether they meet the clean tech criteria. VentureXpert is the official database of the NVCA.”
And NRDC with E2 published their version in 2004 when arguing for a California Cleantech Cluster: “Cleantech as a distinct industry is still in its formative years. The industry encompasses a broad range of products and services, from alternative energy generation to wastewater treatment to environmentally friendly consumer products. Although some of these industries are very different, all share a common thread: They use new, innovative technology to create products and services that compete favorably on price and performance, while reducing mankind’s impact on the environment.”
Also of note, the term “greentech,” which as previously noted is often used interchangeably with cleantech, was popularized by venture capitalists John Denniston and John Doerr of Kleiner Perkins and has become almost a synonym for cleantech since about 2005, when more mainstream venture capital and Wall Street investors began entering the sector increasing numbers, and arguably searched for a term to use to differentiate their investment strategies from past investors. Largely because of its use by these notable venture capital fims, the term was heavily picked up in the mainstream media – as well as new media startups like Inside Greentech (since acquired by the Cleantech Group) and Greentech Media. Riding on the coattails established by “cleantech,” greentech is sometimes characterized as more than just a subset of the cleantech umbrella. It has also been suggested that greentech is the re-emergence of an older term that never quite found broad appeal from its use in the early 1990s or prior. This contrast is illustrated by a quote from John Doerr in Red Herring Magazine on the differences: “’Clean tech,’ as many past efforts at environmentally friendly industry have been called, hasn’t panned out from an investment standpoint, said Mr. Doerr, but “greentech” will. The difference? The word “green” means money is to be made, he said. It’s about advances in areas such as nanotechnology and alternative fuels that mean that companies will succeed in the future where past efforts have failed.” – Red Herring.
This rise of the term greentech began a small debate on which term was most appropriate, and the Cleantech Group responded in numerous articles, with one example here: “”Who wants green air or green water”? The greentech term (and we use small caps unless referring to an org) is very retro and smacks of EPA type regulation. The whole reason we brought the cleantech term to market five years ago was to advance a new concept that reflected technological improvement and new concept. As you know, often cleantech is purchased primarily for non-environmental reasons even though it may offer significant environmental benefits. While some media outlets may be using the greentech term, just about all corps, Wall Street players and VCs who are active in the area use the term cleantech. We think there is room for various terms, eg “resource efficient” but from a capital markets perspective its important there is one term so that a defined asset (allocation) category emerges.” – Keith Raab, CEO and Founder, Cleantech Group