If the Republic is to be a hub for green finance, a new economic model needs to be put in place, writes SUZANNE LYNCH

IN THE coming weeks a major initiative on the “Green IFSC”, mooted earlier this year, is due to come before Cabinet. Led by a group called the IFSC Clearing House Group, the initiative will outline a strategy for Ireland to position itself as a hub for green finance.

The notion of a “green economy” has been held up by policymakers and industry leaders as the great hope for enterprise and jobs. Last November, the high-level action group on green enterprise, formed by Minister for Energy and Natural Resources Eamon Ryan, concluded green jobs in Ireland could account for 4 per cent of total employment by 2020.

The concept of a “green economy” undeniably serves a political purpose at a time when the Green Party is in Government. The idea succeeds in merging the party’s environmental and economic concerns, proving its commercial credentials. There has been some scepticism about the ability of the green agenda to deliver, not helped by the proliferation of abstract phrases such as the “green smart economy” and “clean tech jobs”. But beneath the rhetoric, there is evidence the green sector is one of the few areas of the economy seeing activity and investment.

Latest figures from the Irish Venture Capital Association show that in the second quarter of 2010, companies that can broadly be categorised as “green tech” led the way in terms of attracting funding. Out of a total of €76 million raised by Irish tech companies in the quarter, tidal turbine technology company Openhydro raised the largest amount, sourcing €15 million in investment from a range of venture capitalists, angel and private investors, and Enterprise Ireland. LED lighting company Nualight sourced €8.3 million from a group of investors, while companies such as GT Energy and Solar Print also received funding.

Globally the picture is similar. While 2009 was an extremely tough year for investment, clean technology venture investment outperformed other sectors, with clean technology venture investment totalling $5.6 billion in 2009.

On the ground, hundreds of Irish businesses and entrepreneurs, faced with the toughest commercial environment in a generation, are increasingly turning their attention to the green sector. One such company is ManageCO2, a software company that measures and reports companies’ greenhouse gas emissions. The company was founded last year by Adrian Fleming, a former Dell employee.

When Dell announced it was to cut thousands of jobs in Limerick in January 2009, Fleming saw it as an opportunity. He set about establishing a company which would provide a software solution for companies which were either obliged or wanted to measure and report their carbon emissions. “While working for Dell, I saw that large companies needed a system to monitor and report their emissions and saw an opening,” he says.

Based in Limerick, ManageCO2it provides companies with a software application that can be used for submission of carbon emissions statistics to organisations such as the EU-Emissions Trading Scheme and the Environmental Protection Agency.

The commercial possibilities open to companies such as ManageCO2 are a direct result of the broader national and international policy landscape in which they operate. Under the Kyoto Treaty, countries have binding targets for reducing greenhouse gas emissions, while the Emissions Trading Scheme (ETS), introduced by the European Union in 2005, compels countries to reduce carbon emissions. In addition, our own Government targets are ambitious, including a 40 per cent renewable energy target by 2020.

While only 100 Irish companies and institutional sites are covered by the EU-ETS, and hence obliged to report their emissions, a growing number of medium-sized companies are choosing to implement a sustainability plan voluntarily, says Bartley O’Connor, of PricewaterhouseCoopers. “Part of it is about enhancing public perception of a company, but it also about cost-saving,” he says.

“For example, companies are looking at the potential impact sustainability could have on the business in the next three, five or possibly even 10 years. What are the inputs to the business – energy, water, raw materials, fuel – and what will the consequences be if they were to double in price?”

Already, sustainability is a major issue for the Irish food sector, which is heavily dependent on exports. Many international buyers, such as the major supermarkets, require suppliers to have sustainable and traceable production practices in place. Similarly, while mandatory reporting of carbon output is not required for smaller businesses, it is envisaged it will be in the long term.

While the notion of including carbon reporting as part of financial reports may still be a long way off, the green sector offers short-term commercial opportunities for business.

The construction industry is particularly well placed to profit from the green agenda. Last week delegates at Ireland’s Construction Industry Federation annual conference were told that €400 billion of funding for projects around the green economy in Britain and Ireland will be available over the coming years. As well as the retro-fitting of existing housing stock and the construction of renewable energy infrastructure, a growing area is that of sustainable building materials.

Ecocem, for example, produces cement that is environmentally friendly. Its product, ground granulated blastfurnace slag, is made from a byproduct of the production of iron. Ecocem cement was used in the newly opened national convention centre in Dublin, which itself is carbon-neutral.

However, the main policy focus of the coming months is set to be the so-called Green IFSC. The broad concept is that Ireland’s financial sector can become a specialist in green investments and fund administration, carbon-trading and “green bond” markets to finance environmental projects.

With the importance of the market value of carbon credits as tradable commodities set to continue (global carbon trading volumes are estimated to reach $2 trillion by 2020) as well as the growing interest in socially responsible investment funds, which will need to be administered, the area is perceived as a burgeoning niche industry.

Already, there is activity. Many financial institutions run carbon trading operations, while there are a number of specialist carbon trading entities in Ireland. Irish company Ecosecurities, for example, which develops emissions-reduction programmes and trades carbon emission credits and was formerly listed on London’s AIM-exchange, was bought by JP Morgan last year, after a takeover battle.

But while the green agenda appears to be fertile ground for Irish enterprise in an otherwise barren economic landscape, there are issuesthreatening to curtail activity in the area.

In terms of the Green IFSC concept, there is a belief the initiative will need to include some sort of tax exemption, such as a reversal of the Government’s decision to abolish the remittance basis of taxation, in order to attract foreign executives, particularly if Dublin wants to compete with cities such as Toronto and Miami which are also looking to position themselves as green hubs.

Similarly, there has been significant lobbying for a domestic offset market.

On a broader level, there is the obvious challenge of sourcing finance for an industry that needs heavy capital investment, with some commentators seeing the green economic model as inherently flawed. The scale of investment needed was outlined by Eirgrid this week when it told an Oireachtas committee that a further €6 billion will have to be spent building new wind farms in the Republic between now and 2020 if it is to meet EU green energy targets.

Meanwhile, for midsize green technology and cleantech companies, while the venture capital and investment market has held up relatively well, anecdotally it is proving difficult for start-ups to get seed capital funding.

There are also broader policy and regulatory issues, particularly in delivering on projects in the renewable energy sector.

Last month, Cork-based company EcoPellets, which announced it is to build a £100 million (€120 million) biomass plant in Wales, said the absence of a commercial incentive for renewable energy in Ireland had led to the project, which will create up to 300 jobs, being located in Wales instead of Ireland.

Similarly, the Irish Wind Energy Association has long highlighted the planning complications surrounding the building of wind farms. Some wind farms can take up to 10 years to connect to the grid, by which time planning permission has run out. Such logistical problems need to be addressed, particularly if, as Eirgrid suggested this week, up to 75 per cent of all electricity being used in the Republic would come from wind power at certain points in 2020.

Although complex policy and regulatory issues need to be worked out in order for a fully-fledged green economy to thrive in Ireland, there are opportunities, particularly at a smaller scale, for Irish businesses and start-ups.

Whatever the shortcomings of the broad green economic model, now is an opportune moment for companies to tap into the green agenda.