Feb 28, 2017
Our goal is to invest in companies that can become the leader in green development in their respective industries. The companies we select have to meet two criteria: First, generate good return on investment and second, provide opportunities to make their industries “greener.” There are many companies that may meet one of the two criteria, but it is challenging to find those that meet both. Therefore, our investment team has to be both disciplined and innovative when we make investment decisions and structure deals. After we invest in companies, our post-investment team puts a great deal of effort into enhancing management capabilities and operational efficiencies of our portfolio companies.
What areas of cooperation exist between the US and China on green development?
TheChina and the United States are first and second in the world for electricity production from renewable sources, according to international statistics from the US Energy Information Administration (EIA). One of the most innovative actors working to promote cooperation between the two countries on green investment is the U.S.-China Green Fund. We sat down with Dr. Bo Bai, the CEO of the U.S.-China Green Fund, to ask him about the foundation of the Fund, the enormous potential for US-China cooperation on green development, and where the Fund wants to be in the future.
Tell us about the U.S.-China Green Fund. What are the most interesting issues the Fund has experienced since its founding?
The U.S.-China Green Fund is a commercially-run private equity fund with the mission to promote sustainable green development in China. Through innovative collaborations in finance, green technology and business models, the Fund aims to combine US technologies and products with Chinese market potential and rapid commercialization capabilities.
The traditional understanding of green investment is more or less linked to renewable energy and environmental projects, and it has been difficult to generate good return on investment. We took the concept of green investment beyond traditional boundaries. Similar to the concept of “internet +,” we upgraded our view of green investment to version 2.0, which we call “Green +.” The “Green +” approach utilizes innovative business models to deploy well-developed green technologies and products in large commercial scale into multiple sectors – green energy, green buildings, green consumer upgrades, and green hospitals.
Have there been any outstanding unexpected or surprising challenges, if so, how has the fund risen to address that challenge?
US and China have many opportunities for close cooperation in green development. One key theme here is that Chinese market potential in the environmental and low-carbon sectors and US advanced green technologies are a natural fit, which is what our investments are focused on. Another example is natural gas, an area where there is an inherent synergy of supply and demand. The technological revolution in shale gas has made the US one of the largest natural gas producers in the world. The US is developing and approving new Liquefied Natural Gas (LNG) export terminals to export natural gas to the world market. LNG companies are looking for financing and off-takers of natural gas. There is a natural fit with China, as the country is beginning to change its energy structure by shifting energy supply from coal to gas on a massive scale, and the country is short of natural gas supply from domestic sources. It is worthwhile to explore channels to facilitate the natural gas trade from the US to China.
According to estimates from the United Nations, buildings account for approximately 33 percent of global greenhouse gas emissions. China accounts for 50 percent of all new construction in the world. How has the establishment of the U.S.-China Green Fund addressed the reduction of the adverse effects of China’s construction?
Green buildings and energy efficiency is one sector of focus for the U.S.-China Green Fund. The first investments of the Fund were in a commercial building energy servicing company (“ESCO”) and a residential smart home service company, both bringing advanced US green technologies to provide comprehensive energy management solutions, including lighting, HVAC, air purification, solar energy, and recycling to large commercial energy consumers such as hotels and hospitals, as well as to individual households. This allows us to positively contribute to the reduction of greenhouse gas emissions from buildings and provide healthy greener solutions and lifestyles to a diverse array of beneficiaries.
What advice do you have for American companies that are lead developers and deployers of green technologies, trying to penetrate the Chinese market?
Find the right local partner to help build the infrastructure and right relationships for your market entry and penetration. Choice of partner goes beyond the peer players in their industry. Investors can be a great choice.
Maintain positive relationships with central and local governments.
Devise a good China strategy with emphasis on localization of products, relationships with key stakeholders, and IP protection.
Many multinational corporations operate on management models that are out of sync with the pace of China’s market development. Local business decisions, large or small, are still often driven out of the Headquarters and the mindsets of decision-making are often very US- centric. Companies need to not only localize, but more importantly, empower their local management teams.
The traditional understanding of green investment is more or less linked to renewable energy and environmental projects, and it has been difficult to generate good return on investment.
Within the last few years, how have Chinese citizens become more concerned by the detrimental immediate and long-term consequences of pollution? Have these concerns enabled more private-public partnerships through the fund?
Public dissatisfaction over dire environmental problems, particularly air pollution and food and water safety issues, have led to government policies to promote greener technologies and solutions. The Chinese government has advocated the public-private partnership model over the past several years, and we are now seeing more innovation in this field, to push for sustainable, long-term growth instead of short-term incentives such as subsidies.
It is important to have the central government’s support in green policies, but local governments are the ones who make things on the ground happen. The U.S.-China Green Fund sees itself as the commercial implementer of government policies, working collaboratively with local governments and businesses to grow the economy through green investments. In doing so, we also demonstrate and influence local stakeholders to make green investments with positive returns.
What would you say have been the three biggest successes for the Fund since its establishment in 2016?
First, we built a high-caliber team with shared aspirations in promoting sustainable green development in China and US We were able to come together in a very short period of time and work together with high efficiency.
Secondly, through months of efforts, we developed a clear vision and unique business model that differentiates us from other private equity investors, which includes the concept of “Green+” and the four sectors of our investment focus.
Last, but not least, we made great progress in investments. Currently we have invested in five companies, and they are all operating smoothly and growing with our capital and professional management. We have a strong pipeline of projects which we are in the process of evaluating and negotiating. We expect to have a strong portfolio of companies by the Fund’s first anniversary.
Looking ahead, what are the Fund’s most important priorities and goals it hopes to achieve for the year?
We have two main priorities for the Fund currently. One, to become a leading institution for green collaboration, in identifying viable financial, technological, and business innovations, and making a positive difference in the way private equity funds and other investors view and invest in green investments. Two, social and environmental impact, in reducing energy consumption, promoting advocacy in the area of environmental policies, facilitating more green education, and creating a healthier, more sustainable future for our citizens.