Can’t see the wood for the trees?

25th June 2009

Environmental enterprise is one of those “back burner” issues that deserves to be much more prominent in the entrepreneurial mindset.  One of the reasons for its low profile is the lack of focus within the debate on entrepreneurial responses to climate change.  Are we talking about clean tech and large scale renewable energy production?  Is it recycling or reducing our carbon footprint and therefore part of a corporate responsibility agenda? Is it clean buildings and eco-cities?

The confusion in the debate was highlighted for me by two things.  First, the UK government announced that wind energy had the potential to provide one quarter of the UK’s energy needs but the British Wind Energy Association said it would not be awarding wind energy contracts to small firms.  The reason, they argued, was that wind energy sites had been sold by small businesses to big ones and therefore, negotiations to supply contracts to wind energy companies would only be with the “big boys”.  In the context of energy production, apparently, small is definitely not beautiful.

Second, the Economic and Social Research Council (ESRC), the Social Enterprise Coalition and the Department for the Environment, Farming and Rural Affairs (DEFRA) organised the first Knowledge Exchange workshop on environmental entrepreneurship.  That the event was necessary suggests that the thinking around what environmental enterprise is and what sort of business model is appropriate is still embryonic.  Dr. van der Horst from the University of Birmingham showed convincingly that, in remote communities such as Westray in the Orkney Islands where energy supply is unreliable or unavailable, small is not just beautiful but also the most productive and the most practical. 

Confused? You should be.

Yet if the amounts being invested in clean tech are anything to go by, investors have a clear idea of what the sector is and where the money is likely to be made.  A recent report by the Cleantech Group and Deloitte and Touche reported that there had been a total of $1bn invested in venture capital globally to support clean energy entrepreneurial businesses.  While this was the second consecutive quarter decline in investments, the decline is less than in other venture capital supported sectors and the total amount is regarded as healthy. 

According to Patrick Sheehan, founder and partner of the Environmental Technologies Fund, the issue with all of this, is that once you start talking about the environment, it becomes very hard to generalise.  One person’s green solution is another’s environmental catastrophe and a lot of money goes into projects like carbon capture which have to be on a large scale and funded commercially in the first instance with infrastructural support from governments across the world.

The focus, both of debate and of investment, is increasingly likely to be on smaller, in Patrick Sheehan’s words, “less sexy” projects.  There are a number of entrepreneurial businesses coming though with disruptive technologies that will allow them to open the environmental energy market up to a mass market, especially in things like domestic renewable energy where prohibitive costs and slow payback periods have arguably prevented the environmental sector from growing.

So it’s small companies that will lead the way but do these need to be social enterprises?  A lot depends on how you define a social enterprise but, if it is as a business that uses its surpluses (i.e. profits) to reinvest in the goal of environmental sustainability then the answer should surely be “Yes, social enterprise has to be at least part of the solution.”  Such a definition allows growth investment to be rewarded on a commercial basis while ensuring that as much as possible is also reinvested in the business itself. 

But the sheer scale and urgency of the environmental problems that the world faces mean that we must be imaginative about the approaches we take and committed to providing a single focus point for all environmental entrepreneurship to give it a voice quickly.  In the words of a public relations expert, “there seems to be a lot going on, but it is all fragmented and bogged down in dogma.”  In the same way that social enterprise now has a definition and an agenda, we need to marshal our thinking quickly for environmental entrepreneurship too.