Long term regulatory frameworks required to translate investor interest into action in the environmental sector

Posted: Tuesday 22nd December 2009

There is significant interest from investors in the environmental sector but new approaches are required to increase investment in environmental technologies and services, according to a new survey [1] conducted by The EIC Environmental Investment Network [2] of 71 private and institutional investors [3] and launched by Tim Yeo MP at The House of Commons recently. This survey uncovers environmental investors’ suggestions for the Treasury, ahead of December’s pre-budget report.

The survey confirmed that Government needs to focus on setting long term regulatory frameworks to stimulate investment in environmental technologies and services and individual businesses can develop accordingly to sit within these frameworks. Only 20% of respondents believe the Government is doing enough to encourage environmental investment. This fully supports the results of previous survey [4] conducted by The EIC Environmental Investment Network, where 69% of environmental entrepreneurs across the UK suggested that the Government is not doing enough to incentivise the sector. Respondents in this previous survey also confirmed that legislation generates demand for their technologies and long term policy commitments reduce the risks perceived in an investment proposal.

Despite this, investors have considerable interest in the environmental sector and its potential for growth. 68% of respondents forecast their investment activity in this sector will increase during the next two years and an overwhelming majority, 84%, believe that investing in environmental technologies is a high priority for investors, of which 9% suggested it is the sector with the highest priority.

However, at present, investor interest is not being adequately translated into tangible investments as the global economic downturn has impacted upon environmental investment. Respondents to this survey acknowledged that because of the current economic climate, they are generally taking longer to reach investment decisions and are more selective about which commercial sectors and individual propositions to invest in. Furthermore, they identified that banks are seeking later stage and less risky investment opportunities, of which there are few in the relatively immature environmental sector.

Interestingly, however, investors are not clamouring for additional finance to be made available and do not perceive extra funds as the solution to increasing investment in environmental technologies. Just 13% of respondents identified that their environmental investment is restricted by a lack of funds. Furthermore, a considerable proportion of respondents, 47%, indicated that public funding secured by a company would not influence their decision whether or not to invest in that company. This result supports another finding from the EIN’s previous survey, where only 8% of environmental entrepreneurs declared that they would approach the Government initially for funding.

An important issue for Government to consider is that UKcompanies are competing internationally for investment asonly 37% of respondents, all of which are UK-based investors, invest exclusively within theUK. UK environmental companies must have access to the investment required to develop and commercialise their environmental technologies and services to realise their environmental and economic benefits.

Commenting on these findings, Michael Sippitt, Joint Chair of The EIC Environmental Investment Network said: “The scale of investment needed across the world to tackle the impact of climate change is beyond the capacity of governments alone, and this survey underlines that bold steps to maximise private and corporate investment in new technologies are vital.”

Adrian Wilkes, Chair of The Environmental Industries Commission (EIC)[5] highlighted the crucial role government has to support companies within this sector during this time: “Tackling climate change and environmental pollution is going to quickly require theUKto invest hundreds of billions over the next decade. This historic investment challenge facing theUKrequires Governments, of whatever political persuasion, to work with the investment community to devise successful policies. It is clear that eco-investors want the Government to do far more - notably by providing a long-term regulatory framework and incentives to overcome the investment risks.”

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