How Is Clean Tech Different From Green Tech

The concept of “clean tech” is a response to the projected population growth on the planet, which is estimated to be 2.3 billion people by the 2050. The theory is that clean tech companies, which address environmental sustainability as part of their overall business strategy for profitability, will be the model that successful companies will have to use in order address the increasing demand for food, clothing, shelter and other scarce resources that will only increase as incomes rise across the globe.

Where “green tech” evolved in the 1970s from government controls intended to mitigate the effects of manufacturing and agricultural pollutants on the environment, “clean tech” is built into the business model from the very beginning. Green tech has traditionally always seen as an expensive, but required, drain on a company’s profits. Clean tech is built into the business strategy as an acknowledgement that resource scarcity and pollution exist and must be addressed when planning profitable strategies. It is a long the same lines as when a business incorporates the cost of paying office rent or the cost of purchasing manufacturing materials into its overall budget.

Also, there are some products which are included in green funds which would never be included in a clean fund, such as ethanol. Where an alternative energy fund would include a company which produces ethanol in its fund because ethanol is considered to be an alternative to petroleum based fuels, a clean tech fund would not include an ethanol-producing company in its portfolio because of it’s net carbon effect. Ethanol production requires so much petroleum based fuel in order to grow the corn and process it, that there is negligible positive effect on the environment for using it.

Green tech Exchange Traded Funds (ETFs) tend to focus narrowly on a single business sector, like energy, manufacturing or recycling. As a result, green energy Exchange Traded Funds can be extremely volatile and sensitive to fluctuations in the price of oil. Clean tech ETFs have not been so volatile (although, in fairness, they have only been around since the Clean Tech Index was created in 2006, so there is not a long history to track). Clean tech companies exist across a broader range of business sectors like agriculture, manufacturing, transportation and new materials. As a result, clean tech Exchange Traded Funds have seen a more stable performance, comparable to the returns from the S&P 500 Index.