Cleantech: Term for Environmentally-Friendly Practices and Tech

What Is Cleantech?

In finance, the term cleantech—short for clean technology—is used to refer to various companies and technologies that aim to improve environmental sustainability. Usage of the term has varied over the years, with some users treating it synonymously with terms such as “green technology” to refer to renewable energy sources, new methods of recycling, and other environmentally-friendly practices.

In other cases, the term refers to methods of reducing the negative environmental impact of otherwise conventional technologies such as coal power or natural gas. In this context, terms such as “clean coal” or “clean energy” are commonly used, although many environmentalists question the validity of this usage.

How Cleantech Works

The term cleantech has its origins in the venture capital (VC) investment community, which began using the term in the late 1990s and early 2000s. It was notably popularized by Nick Parker and Keith Raab, who founded the Cleantech Group in 2002. Today, this organization—a research and consultancy company headquartered in San Francisco—serves as a coordinating body for activities in the sector.

Historically, cleantech was used to refer to a wide range of technologies and practices, ranging from solar and wind energy production to process improvements that can increase efficiencies in supply chains and production lines. Today, mainstream discussion of environmental issues has tended to use terms with a more explicit environmental connotation, such as “green technology” or “eco-friendly technology.” Nevertheless, references to cleantech remain popular in the financial, VC, and business communities.

This movement toward sustainable investing is supported in part by organizations such as the United Nations Principles for Responsible Investing (PRI), which collects and publishes data from a network of over 3,000 participating financial institutions. 

These “signatories” to the PRI agree to adhere to a set of six principles intended to place environmental sustainability at the heart of their investment decision-making process and commit to self-reporting on their progress toward this goal. As of January 2020, the PRI’s network of signatories had combined assets under management (AUM) of over $80 trillion, making them an increasingly influential body in the global investment community.

Real World Example of Cleantech

Investors who are interested in environmentally-friendly companies and technologies now have a vast range of options to choose from, ranging from individual companies to diversified portfolios. 

In regard to publicly-traded companies, most of the cleantech companies available to choose from are involved in renewable energy production, such as solar, wind, and hydroelectric power. Examples of such companies include Terraform Power (TERP), based in New York and Alterra Power, based in Toronto (AXY). Investors can also opt for diversified investment vehicles, such as the publicly-traded limited partnership, Brookfield Renewable Partners (BEP).

Another major area of interest concerning cleantech is the steady increase in jobs related to the sector. Some of the many types of positions involved in cleantech companies include solar panel installers, civil and process engineers, technicians, and manufacturing personnel—along with a wide range of trade-related occupations required to install and maintain cleantech facilities.

For example, Yahoo Finance reported that just one of these positions—solar-panel installers—was the fastest-growing job category in eight different states, projecting that the number of such jobs would more than double by 2026. Workers who maintain wind turbines were also cited as a fast-growing area of employment, one whose average annual compensation is almost $55,000.