A significant role for private capital.

• Author: Stoller, David C.
• Position: Leadership in Environmental Initiatives - Special Section: Answering the Call for Leadership

In the 1980s, the environmental industry grew substantially but was essentially consolidated around existing technologies and permitted facilities such as incinerators and landfills. Correspondingly, the large waste management firms with well-established "traditional" technologies commanded most of the attention in the financial marketplace. In the 1990s, however, fundamentally different trends seem to be emerging:

* First, waste avoidance and/or minimization appears to have taken hold, and waste generators are actively seeking ways to redesign and re-engineer their processes to reduce or avoid waste generation -- as well as make the products themselves less hazardous. Companies are doing this for several reasons: rising disposal costs, substantial potential liabilities, and heightened public attention.

* Second, waste strategies, which are largely driven by regulation, e.g., the land ban regulations, have forced companies to increasingly focus on on-site, treatment-based solutions, as opposed to off-site disposal options.

* Third, a wave of consolidation is occurring across broad segments of the industry as many of the smaller independent environmental companies, which might otherwise be best positioned to exploit new technology, lack the necessary capital and management resources to meet the increasing demands of a capital-and regulation-intensive business.

In light of these trends, private capital should -- and does -- have a significant role to play in this industry.

Several years ago, most financing opportunities targeted the established technologies, such as incineration and landfilling. Today, the trends noted above would appear to favor the commercialization of innovative technologies and new treatment alternatives. Private capital is not, however, freely flowing this way and emerging waste management companies are having considerable difficulty accessing the capital markets. What factors are holding back investment in this industry? I would point to several:

* The last several years have been difficult ones for the environmental industry in general. The recession has been a major factor, and few environmental companies can be touted as success stories. Earnings have been down for most established companies in the industry and those emerging companies that have succeeded in raising money in the capital markets have subsequently experienced difficulty in establishing commercial success despite the promise these companies offered on...