2009 Articles

New Green Business Model for Sustainable Finance

Fusaro, Peter C.

Emerging markets for environmental financial investment and trading continue to attract significant global investment interest but little investment capital as yet. According to Cleantech Venture Network, $5.18 billion was deployed for clean-tech investment in global markets for 2007. For research and development in the same year, U.S. energy companies committed only $4 billion and the U.S. federal government spent $7.5 billion. It is now estimated that underinvestment in U.S. energy and water infrastructure is over $2 trillion. This underinvestment has been held up by regulatory uncertainty of the United States on federal climate change legislation as well as the lack of attention by politicians. That will now
change with the next U.S. administration. As markets change, so do investment models. The new business model that has emerged for investment in alternative energy and clean technology is a hybrid business model of venture capital, hedge funds, and private equity. Investment is locked up for shorter periods of time, from one to four years, rather than with traditional venture capital time spans of up to 10 years. Coupled with the project orientation of the investment, there also is a dimension of credit trading for emissions, carbon, and renewable energy included in this investment strategy. The blurring of the lines among hedge funds, private equity funds, and venture capital is being exacerbated by significant private equity participation in environmental finance. This new hybrid financial green investment model will be discussed and analyzed in this paper.