Financial Strategy for Green Investment in Sustainable Innovation

Managing green investments are entertwined with innovation because change is at the heart of "green" and sustainable change.

Marketing Green provided an interesting evaluation of innovation financing that can also be applied to green innovation and green technology.

In many ways, the imposition of carbon caps will reset the current competitive landscape.  Those businesses able or willing to adapt more quickly to this changing landscape will likely secure a competitive advantage by differentiating their brand or products, or by improving their cost basis.

How aggressive will carbon reduction targets be?  A recent Human Development Report by the United Nations Development Programme concluded that developed nations needed to reduce carbon emissions by greater than 80% from 1990 levels by mid-century in order to advert the worst impact of climate change.  Under any implementation scenario, carbon caps will likely be imposed over many years, if not decades, providing a window of opportunity for companies to adapt to and compete in this new world order.

Marketers must understand and compensate for bias that leads to underinvestment in green.  Formulate a strategic vision for green, properly balance the risks and rewards and invest for the long haul.  Your shareholders will thank you.

Clayton Christensen, Stephen Kaufman and Willy Shih, “Innovation Killers: How Financial Tools Destroy Your Capacity to Do New Things”, Leadership & Strategy for the Twenty-First Century, Harvard Business Review, January 2008 point out the following three financial straegies that can hinder innovation ... and green investments:

Cash flow modeling: Companies often do not fairly compare the projected discounted cash flow from a new investment

Asset lifetime: Financial managers may mistakenly assume that that an asset’s usable lifetime should be based simply by its depreciation period, rather than its “competitive lifetime”.

Quarterly earnings: Companies that focus on quarterly earnings may systematically under invest in innovation as they are not rewarded by the market for doing so. 

Read the full article at MarketingGreen.wordpress.com