Clean tech, also referred to as clean technology and greentech, is an umbrella term which spanning several industry verticals. Essentially, clean tech refers to products, services, and technologies which aim to increase performance while reducing negative impact on the environment.

In its quarterly MoneyTree report, PricewaterhouseCoopers considers clean tech to be a combination of “agriculture and bioproducts, energy efficiency, smart grid and energy storage, solar energy, transportation, water and waste management, wind and geothermal, and other renewables.” EcoConnect, the green energy business network, breaks this down further by identifying the eight key categories of clean tech: renewable energy generation, energy storage, energy efficiency, transportation, air and environment, clean industry, water, and agriculture. Together, these areas constitute the diverse arena of clean tech investing.

Coming into its own

The clean tech sector began to gain prominence in the mid-2000s, when mainstream investors started investing venture funds in the environmental, alternative and renewable energy sectors. A decade later, the sector has become an important venue for innovation. Substantial progress has been made in the areas of wind power, solar photovoltaics, advanced batteries, energy-efficient lighting, and fuel cells. For example, the White House reports that the cost of solar energy systems has decreased by 50% in the last five years alone.

Market today

The market has recently been struggling, with PricewaterhouseCoopers reporting a 72% decrease in funding from Q1 last year. Clean tech Advisory Leader pinpoints the smaller average deal size (which dropped 63 percent from Q1 2014) as the main reason for this decrease in the market. This effect is compounded by the reduction in deal volume this quarter, which has decreased by 24 percent.

However, these disappointing statistics may be turning around with the support of government initiatives. In February 2015, the U.S. Department of Energy announced a Clean Energy Investment Initiative, which sought to generate $2 billion in private sector investment solutions to climate change. The initiative worked to mobilize a broad range of investors to fund all stages of the energy innovation pipeline, from laboratory research and development to growth financing.

Looking forward

The Obama administration’s initiative appears to be a success. In June 1015, the U.S. Department of Energy reported that their initial goal of $2 billion of investment in the clean tech sector had been met and doubled. This investment in clean tech will transform the ways in which the economy deals with climate change.

A consortium of long-term investors (including the University of California’s Office of the Chief Investment Officer, the New Zealand Superannuation Fund, and the Alaska Permanent Fund) is planning to build a “nonprofit investment intermediary that identifies, screens, and assesses high-potential companies and projects for commercial investment that could also produce impactful and profitable solutions to climate change.” Initially allocating $1.2 billion, with the goal of mobilizing $2.5 billion over the next five years, this investment will travel directly into clean energy solutions.

Goldman Sachs is also demonstrating an increased interest in the clean tech sector,  investing $500 million in companies that develop and deploy clean energy technologies. This includes smart grid infrastructure to modernize the grid, thus facilitating the use and development of clean energy sources. Together, these major investments in the clean tech sector illustrate the growing economic importance of this ethically oriented market.