Start by supporting the companies that offer solutions
As Canada’s leadership has set ambitious climate action targets in an effort to boost the country’s environmental performance, many look to research and innovation for the tools for getting there.
Is our research and innovation infrastructure up for the challenge? Not sufficiently, says Vicky Sharpe, who believes achieving a higher level of sustainability requires a shift in how we rank environmental impact in society as well as financial markets.
She says it is necessary to make a distinction between R&D and innovation. “Innovation is about delivering benefits to the market, and sometimes we forget that at our peril,” she explains.
“Cleantech companies need different forms of support through the entire innovation ecosystem, from research and development to demonstration, scaling and deployment.”
It’s Ms. Sharpe’s prerogative to speak her mind about the issue. With her background as a corporate director and as founding president and CEO of Sustainable Development Technology Canada (SDTC), she is one of the top go-to persons for advice on how to strengthen low-carbon technology innovation.
While there is currently much attention on Canada’s action plan, she believes we are in a crucial period that may tip the scales between reaping the benefits of clean technology innovation or “losing the great companies that have received investments from both government and the private sector to foreign interests.
“These companies need to scale up and do so rapidly. The conventional venture capital model does not work for high-capital equipment, or high capital expenditure (high-capex), technologies, and private equity, or project finance approaches typically won’t take on scale-up risk,” says Ms. Sharpe.
She speaks about a certain kind of enterprise – a more mature cohort of companies that are about 15 years old, have strong intellectual property and whose revenues are mainly from exports.
“The good news is that these great companies increase productivity and competitiveness for the end user, plus they pay a higher average wage than other small or medium-size enterprises,” she says. Plus, importantly for the commitment made by Canada at the Paris COP, these high-capex technologies deliver greater greenhouse gas reductions, according to a 2006 SDTC portfolio analysis.
Yet there are barriers hindering their forward momentum, says Ms. Sharpe. “The reason the companies cannot scale their operations is not because they’re lacking competitive products or sophisticated management teams, it is because they don’t fit our country’s commodity-based investment approach,” says Ms. Sharpe. “In spite of the strong performance of the Renewable Energy and Clean Technology Index, the TSX and TSXV are dominated by mining, utilities, oil and gas, and other technologies.”
Another barrier is that Canada, except for off-grid communities, is a low energy price jurisdiction, so energy efficiency doesn’t have the impact it has in other markets, like Europe, causing weak domestic sales. While many Canadian companies go directly to larger international markets, not being able to show domestic revenues puts them at a disadvantage.
“This creates serious doubt,” says Ms. Sharpe, who recommends finding ways to engage – but not necessarily subsidize – domestic procurement by governments and businesses.
“Leaving it all to the market” doesn’t work, in Ms. Sharpe’s view. “Markets are typically tipped towards quick profit, and while we see increasing investment in low-carbon technologies globally, Canada is not seizing its share of this opportunity.
“We don’t have the luxury to wait. If we want to meet climate targets, we have to redefine our priorities now.”
However, Ms. Sharpe takes heart in the broad recognition that what is good for the environment is good for the economy, as is evident in a strong commitment to change at the federal level, plus provincial examples like Alberta’s Climate Leadership Plan and Quebec and Ontario’s cap and trade programs. More consistency in carbon pricing, smart regulations and reporting of companies’ environmental impact, including carbon footprint, can also boost the confidence of international investors and trade partners in the Canadian market as a whole, she adds.
While government programs can help to de-risk future investment in these companies that help tackle climate change, Ms. Sharpe believes engaging the investment community is just as essential, thereby leveraging public funds and putting the onus on capital markets. Ways to attract this capital is through measures like loan and payment guarantees, performance bonding and a broader recognition of cleantech assets so a line of credit is easier to obtain. Pension funds, for example, can have an opportunity to re-balance the carbon intensity of their portfolios and invest in greener infrastructure.
“[Supporting clean technology] is not only the appropriate move – it’s also the fiscally responsible thing to do,” she says.
View entire report on globeandmail.com