The color green has started to take on new meaning for Wall Street. Investing in clean technology, or cleantech—products that reduce pollution and conserve energy—has long been confined to investors concerned about the fate of the planet and the impact of fossil fuels on the environment. Today, cleantech has attracted new investors that realize the money-making potential of environmentally friendly technology.

The global market for clean energy, including wind, solar, and fuel cells, totaled $16.1 billionin 2004, according to estimates by market research firm Clean Edge. Still, in the United States last year, cleantech venture investment stood at a paltry 6 percent, or $1.2 billion of the total $20 billion in venture funds that went totechnology companies.

But aggressive moves by big oil and energy companies, including Chevron, Shell, and General Electric—an unlikely source of investment—have sparked more interest. Last month, GE CEO Jeff Immelt vowed to double investment in cleantech over the next five years to $1.5 billion. Those statements get Wall Street’s attention.

Last month, GE CEO Jeff Immelt vowed to double investment in cleantech over the next five years to $1.5 billion. Those statements get Wall Street’s attention.

Seasoned observers point to several forces driving the sector: changing politics, better economics brought on by the dramatic rise of oil prices, more efficient clean energy, and more environmentally conscious industry practices.

Among the most active venture investors in North America are NGEN Partners, Enertech Capital Partners, Expansion Capital Partners, and The Global Environment Fund. In Europe, Sustainable Asset Management, TechFund Capital Europe, and Truffle Venture are currently raising funds for cleantech. Several big brands such as Kleiner Perkins Caufield and Byers, Apax Venture Partners, and VantagePoint Venture Partners are currently testing the water.

North America

To get going, the cleantech sector needs more serial entrepreneurs, a few high-profile exits, and interest from institutional investors. The latter, at least, has begun to materialize. On February 3, 2004, CalPERS (California Public Employees’ Retirement System) and CalSTRS (California State Teachers’ Retirement System)—the largest and third-largest public pension funds in the U.S., with combined assets of more than $270 billion—promised to invest $1.5 billion in clean technologies.

In the U.S., there is growing concern that the rest of the world is more aggressively embracing the market for cleantech. “One of my partners is in China this week,” says Bill Green, managing director of VantagePoint Venture Partners. “He called me and said, ‘The game is over and it’s not being played in the U.S.’” In fact, Americans have shown less interest in clean technologies than their counterparts in countries like Germany and Japan. Unlike the U.S., many countries offer subsidy programs for renewable energy.

ChinaGermanyUnlike the U.S., many countries offer subsidy programs for renewable energy.

A recent report by the United Kingdom’s Carbon Trust indicates that private-sector cleantech investment is growing at 30 percent per year and has reached £1 billion ($1.82 billion) in the U.K. The report credits ratification of the international Kyoto Protocol, high fossil fuel prices, and new entrepreneurs as catalysts for growth.

U.K.

In the pages that follow, Red Herring looks at big oil’s push into clean energy, and examines whether it’s smart business or just good public relations. The briefing report also examines the next wave of innovation for hybrid automobiles, and presents 10 promising startups pursuing new opportunities within this sector.

Red Herring

The bottom line: the market for cleantech is growing, and major energy players realize the potential. As Wall Street knows, these companies aren’t always right—but they didn’t get that big by chasing after the wrong markets.