5 Threats Facing Cleantech Companies in Canada

Last year, Ontario made international headlines by meeting an ambitious environmental target. In April of 2014, the last coal-burning power plant in the province used its final load of coal. Renewable energy played a role in this transition; the use of wind power and hydroelectricity increased with the drop in (and eventual elimination of) coal usage. Meanwhile, in B.C., a carbon tax implemented in 2008 continued to create a wealth of benefits, including the country’s lowest income tax rate and highest-performing GDP.

 

These success stories – along with an abundance of recent articles singing the praises of Canadian green innovation – may give outsiders an idealized impression of Canada’s cleantech landscape. Unfortunately, the truth is more complicated. While opportunities do exist, a number of barriers continue to threaten the growth of cleantech companies operating in Canada. These barriers are explored below.

 

 

Emerging Markets

According to Martin Haemmig (senior advisor of venture capital for the Stanford Program on Regions of Innovation and Entrepreneurship), emerging markets are set to create the next generation of cleantech innovators. Haemmig maintains that developing in these markets offers certain entrepreneurial advantages, including opportunities to test innovation with little competition and the problem-solving skills associated with serving dense, high-growth populations. For Canadian companies, these innovators may represent a particular threat.

 

Many international investors want to see real-world proof that a product or service will work. In many countries – like Denmark and Germany – cleantech companies are able to attract outside investment by showcasing their capabilities through domestic projects. Even in these regions, Haemmig sees a threat from innovators in emerging markets, who he believes will “start challenging leading players to catch up”. But in Canada, where many companies struggle to gain a foothold in the domestic market, the likelihood of losing out to new competitors is especially high.

 

In a Tyee article, Celin Bak – founding partner of Ottawa-based cleantech consultancy Analytica Advisors – describes “a sort of infantilization of Canadian cleantech companies”. As a result of such attitudes, these companies are not always taken seriously. Consider the example of technologies that could reduce the environmental impacts of the oil sands. Though the companies that produce these technologies make up a sizable portion of our cleantech sector, Bak claims that “nobody from the oil sands is taking their calls”. Organizations that face such barriers within their own country may have difficulty competing with foreign companies, especially those with the breadth of experience that comes from learning in an emerging market.

 

 

Federal Policy

Federal policy is probably the most-discussed item on this list, and for good reason. Looking at global clean-energy leaders like China and Germany reveals one key to a greener economy – government support. In China, many cleantech companies take advantage of preferable tax rates and ready access to loans from state-owned banks. Germany has spurred an explosion of cleantech patents through feed-in-tariffs in its Renewable Energy Act.

 

Whereas policies that incentivize the production and use of clean energy help cleantech sectors thrive, those that favour traditional energy sources represent a threat. One (albeit contentious) example can be found in a 2013 study by the International Monetary Fund,

which claims the Canadian government subsidizes fossil fuel at a cost of $800 per person. According to critics, such government action provides traditional energy companies with an advantage, making it difficult for cleantech companies to gain a foothold in the marketplace.

 

Other frequently-cited barriers to success – laid out in this 2013 report by the Pembina Institute – include issues related to funding and low policy-driven demand for clean technology. Needless to say, these factors can have a direct, negative impact on individual cleantech companies.

 

It should be noted that the federal government contributes to funding efforts through organizations like SDTC (Sustainable Development Technology Canada) and offers free online resources and advice. There are many proponents of this strategy.

 

 

Conservative Investor Biases

According to an article in common ground magazine, “four out of five of the largest investors in Canada’s cleantech expansion currently come from outside the country”. Government priorities are bound to have an effect on the perceptions – and subsequent decisions – of domestic investors. But, if a 2012 Financial Post article is to be believed, conservative tendencies in Canadian investors have deeper roots. According to author Dan Ovsey, these tendencies are connected to “the country’s history and culture of modesty, compromise, and most prevalently, risk aversion.”

 

It seems that cleantech – a still relatively-new sector – is a particularly hard sell for cautious Canadian investors. As a result, many companies are looking for venture capital outside of the country. While this is a viable option for some, it’s not always a perfect solution. As stated in an earlier section of this post, foreign investors are often turned off by companies that can’t provide domestic demonstrations of their products’ usefulness. Furthermore, dealing with foreign investors can result in a host of other complications, especially for SMEs (the small and medium-sized enterprises that make up most of Canada’s cleantech sector). Some of these complications are explored in the next section of this post.

 

 

Insufficient Cultural Knowledge

Failing to grasp the complexities of a cross-cultural business relationship can have consequences in any sector. However, cleantech startups may be disproportionately impacted. Consider the case of AMSC, an American cleantech firm that did business in China. AMSC claims it was financially devastated after its intellectual property was stolen by its Chinese partner, Sinovel. A Tyee article – “Behind China’s Green Wall: Special Report” – lays out the story and ensuing industry reactions, which include apprehension on the part of many Canadian cleantech firms when it comes to China.

 

It’s easy to imagine how a lack of sound cultural knowledge could leave a company vulnerable to threat (though it’s impossible to say whether this contributed to AMSC’s woes). On the other hand, avoiding China on the basis of a few stories may be the biggest mistake of all, given the scope of the country’s clean-energy commitment. According to the Tyee article, one of the biggest misconceptions of Western companies seeking Chinese partnerships is the idea that “China’s 1.34 billion people constitute a single market”.

 

In order to take advantage of global opportunities, Canadian cleantech companies must open themselves up to learning about the various customs (and potential warning signs) that may arise in cross-cultural partnerships.

 

 

Bad publicity

This may come as a surprise to some, but the popularity of green initiatives has been a double-edge sword for some cleantech companies. It seems every commercial organization wants to project an environmentally-friendly image; unfortunately, some are less than completely honest in their attempts to do so. These companies participate in greenwashing – the use of vague, misleading, or unsubstantiated claims in an attempt to give consumers a false impression of the environmental impacts of their products. As a result of these tactics, many consumers have become hypervigilant, leading to skepticism about the benefits claimed by cleantech companies.

 

Greenwashing expert Thomas P. Lyon believes this phenomenon prevents companies from making legitimate “green” claims. An article in the American journal Environmental Health Perspectives summarizes his opinion this way: “when a clean company pulls in its horns over the risks of backlash from a cynical public…an opportunity is lost”. In addition, cleantech companies may face unfair accusations of greenwashing from competitors, who use such claims to win public relations battles. A good example would be oil companies that criticize wind farms for causing the deaths of birds.

 

 

Making the Best of an Imperfect Situation

In some ways, this is a tough time to be a cleantech company in Canada. But as many innovators in emerging markets have learned, challenges can be turned into strengths. Being resourceful means taking advantage of every tool at your disposal. For cleantech companies, this may include the funding portal – a new online service that helps connect startups (and some public companies) with investors. Participating in events such as Cleantech Investor Day (an event hosted by the TSX and TSX Venture exchanges) can increase company exposure, attracting funding opportunities.

 

When it comes to understanding the complexities of doing business in other countries, the Canadian Trade Commissioner Service can be enormously helpful (though nothing can replace personal efforts to stay abreast of regional developments). Bad publicity can be tracked in an efficient and cost-effective way using media-monitoring software. But the biggest challenge may be convincing investors – and the world – of what those in the industry already know. Clean tech isn’t just a fad – it’s the future.

 

This brings us to the common thread running through each of the challenges listed above: information. Competing in a relatively-new area necessitates a flexible and creative business approach; however, knowledge – of relevant public opinion, technological developments, world events, and more – must always guide a company’s actions. The most successful clean tech companies will be those that make use of the vast stores of publicly-available insights and intelligence.

 

Feature Image: Curtis McCormick

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