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Corporates and Cleantech: Innovative Solutions for a Changing Business Climate

VinceKnowles

The natural world is changing. 90 years ago cheap energy, plentiful water and a stable climate were beyond question; today none of these have certain futures.

The business world is changing. 90 years ago the average duration of a company in the S&P 500 was over 60 years; today it is only 10 years.

In this volatile environment the corporate is in a challenging situation, with the weight of regulatory pressure coming down from governments and eruptions of creative destruction bursting up from smaller companies. Only this month the UK Government announced legally binding carbon reduction targets that will keep the country on track for 60% reductions on 1990 levels by 2030, a measure that will drastically affect business over the coming decades.

However, as in all times of disruption and change, there will be both winners and losers. While there is much to lose for established corporates, there is also plenty to gain if the threat of disruptive technology can be harnessed into opportunity, through proactive innovation strategies. The global market for cleantech products is projected to double to $3.5 trillion by 2020, showing there is plenty of money to be made in the right areas. Research undertaken by McKinsey & Co for the Carbon Trust has quantified the potential impact of these drivers, finding up to 65% value-at-risk for badly positioned, laggard companies and up to 80% value creation opportunity for well positioned, proactive companies as a result of climate change. It was also concluded that both risk and opportunity are highest in niches of the value chain that are especially exposed, highlighting the necessity of targeted innovation.

It is clear some corporates have woken up to the opportunities and threats in play, and with industrial R&D becoming increasingly expensive, the start-up is emerging as a key source of technological development. Many of these large companies could be found at our Cleantech Forum in Amsterdam last week, shoulder to shoulder with the cleantech start-ups that may hold the keys to their long-term success. Though there is a clear group that has understood the value of engaging with innovative start-ups as part of a wider innovation strategy, there remains a healthy lack of consensus on the most effective mode of engagement. Whether over the question of how much equity to take, or the role of external funds in corporate innovation strategy, it is clear that corporates have started asking the right questions and that cleantech is the place they will find crucial answers.

Vince Knowles is an analyst at Cleantech Group.

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