The outlook for the cleantech sector looks to be improving. While the Climate Policy Initiative reported that global climate finance flows had plateaued at US$359bn in 2012, business growth indicators from our Q3 International Business Report (IBR) are positive, particularly as regards investment and R&D, although a shortage of talent remains a challenge.
Signs of a recovery in Europe are certainly welcome. Prioritisation of long term environmental concerns for consumers, business and government appears to have given way to shorter term agendas, such as the cost of energy. A return to growth in Q2 may spur the region into taking up its role as the global champion of green investment once more; although it seems very possible that Europe will lose its leading position in cleantech to other parts of the world.
China’s greenhouse gas emissions have soared from 10% of the global total in 1990 to around 30% today. Since the turn of the century, China has accounted for two-thirds of global CO2 growth. In January, pollution in Beijing reached 40 times the WHO’s safe limit, prompting protests. In response, the government introduced a carbon market and pledged US$275bn over five years to clean the air. Additionally, energy production intensity has fallen by 20% in five years, and China’s renewable energy target of 20% by 2020 mirrors Europe’s goal.
The global drivers for decarbonisation are becoming more urgent. The IPCC’s Fifth Assessment Report (AR5) stated that climate change is undeniable, with unprecedented changes since the 1950s. Scientists are 95% certain that human activity is responsible for most of the warming since the mid-20th century. UNEP warns that the gap between current CO2 reduction pledges and the levels needed to limit global warming to 2°C continues to widen.
Despite some parts of the global economy being in denial about climate change, cleantech businesses are ramping up investment in plant & machinery (50%), R&D (45%), and new buildings (25%). No other sector shows such a commitment to long-term growth potential. As the sector commercializes, revenue (57%) and profitability (48%) expectations remain strong, second only to the hospitality & tourism sector. To meet these expectations, cleantech businesses must respond smartly to real demand and pursue sustainable growth.
One cloud on the horizon may be on the skills side. A third of the 500+ cleantech businesses surveyed over the past 12 months have cited the availability of skilled labour as a constraint on growth (33%), slightly above the global average (30%). The proportion rises to more than two in five in the emerging markets of Latin America and Asia Pacific. And there are signs that the battle for talent is placing upward pressure on wages: 73% of cleantech businesses expect to raise wages (18% above inflation), compared with 67% of businesses globally (14% above inflation).
We will be watching closely as the sector develops in the coming months. Improving external conditions offer a real chance for the sector to expand. It would be a shame if a lack of skills held this back.