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06/16/2010

The Time is Ripe for Cleantech to Address Its Own Environmental Impacts


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WindmillsNYSSA will be hosting an upcoming forum that focuses on the challenges and opportunities for investors in the sustainable infrastructure sector, including renewable energy and transportation. As is typically the case, many of the challenges can be turned into opportunities when the appropriate monitoring and analytical tools are put in place. One prominent investor in the sector, Diana Propper de Callejon, suggests that as part of that effort, the time is ripe for industry stakeholders to adopt formal codes of best practices to address environmental and social risks.

“There is certainly a lot of good being done in the shifting of energy generation and energy infrastructures toward cleaner fuels and a low-carbon paradigm,” says Propper de Callejon, a general partner at the venture capital firm Expansion Capital Partners, where she comanages the firm’s cleantech fund. “We are at a point in time in cleantech where we can take our investment activities to the next level to make sure that from extraction of natural resources, to manufacturing to managing waste streams, we accomplish the positive environmental and social impacts we seek. Moreover, if the investment community and its portfolio companies do not manage the ‘externalities’ present in many cleantech sectors, these can become more significant business risks that have the potential to impact issues like the right to operate and brand.”

Indeed, while the cleantech industry is justly reputed to be an “environmental solutions provider,” it is also contributing its share of negative environmental impacts in the course of operating in business-as-usual mode. The media has lately been casting a spotlight on these impacts as have a number of environmental watchdog groups that have published sectoral performance rankings based on companys’ risk management practices. For example, the Silicon Valley Toxics Coalition (SVTC) issued its first Solar Company Scorecard in March 2010, ranking solar companies along criteria that include environmental safety, sustainability, workers rights, and social justice. The German company Calyxo received the highest score of 90% from the SVTC for its commitment not to export end-of-life panels to developing countries and not to use prison labor to dismantle panels. It also received points for its vigilance in monitoring its supply chain and for the transparency of its reporting. 

However, the SVTC reported that Calyxo had room to improve on its “commitment to chemical reduction and lifecycle analysis.” At the other end of the rankings spectrum, China JA Solar scored a low 16% for its failure to offer a take-back program for its panels, for its poor record on chemical use and lifecycle analysis, and for its failure to respond to questions about supply chain monitoring. SVTC also publicly exposed those companies that declined to participate in its survey.

Nor have wind turbine and hybrid vehicle battery manufacturers’ environmental and social sustainability records escaped scrutiny. PBS NewsHour recently broadcasted a segment on water pollution in the Baotou region of China, where, it noted, waste from rare earth elements used in the manufacture of hybrid vehicle batteries and wind turbines was poisoning drinking water and impacting the livelihood of local farmers.

It’s not difficult to extrapolate from this media and watchdog attention that the early cleantech adopters of best environmental and social practices will have a leg up on the laggards both from the point of view of their bottom lines and their reputations in the marketplace. “Solar firms that are not figuring in the cost of recycling panels will suffer like those in the electronics industry that had to spend hundreds of millions of dollars in recycling and take-back programs because they didn’t integrate these operations into their business models up front,” says Propper de Callejon. “Those companies that take a more complete life cycle approach to environmental management will benefit from customer loyalty and higher employee satisfaction. These companies will do better over the long term.”

Companies that fail to act on what may now appear to be hidden risks will also encounter branding issues in the future, says Propper de Callejon: “The risk to your reputation is greater the more you brand yourself as a green company,” she notes. “When you fail to achieve your standards or live up to them the backlash can be strong.”

Propper de Callejon concludes that a first step toward a more holistically managed cleantech industry—one that looks beyond the product produced and into all parts of the supply chain and aftermarket activities—is the establishment of a set of codes and standards for each cleantech sector, from solar to wind to electric vehicles. “The environmental investing community along with businesses in the industry and its subsectors need to develop standards and a code of conduct for achieving integrated social and environmental best practices,” she says. “Companies can then manage to those standards. Right now these standards are not in place, so individual companies who want to operate sustainably cannot measure themselves against an industry-wide, accepted best practice.” 

Susan Arterian Chang reports on sustainable investing and finance from White Plains, New York.

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