A significant role for private capital.

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 paper.

* There is substantial market uncertainty due to an often bewildering multilevel and inconsistent regulatory enforcement process -- inconsistent regulations, inconsistently applied. Not only is this a barrier to private investment but it also chills the willingness of industrial companies to act more proactively, since the regulatory rules remain unclear. Companies thus ask themselves, "Will what I do today suffice tomorrow?" And, "Why do something today if the rules -- or their enforcement -- will be delayed or relaxed tomorrow?" The result is inaction on the part of investors and companies.

* There is a general lack of experienced management, both in the start-up companies seeking to commercialize new technologies and in the smaller, independent companies. For the most part, both types of companies inevitably lack the managerial resources or experience capable of achieving the substantial growth investors seek.

Considering these barriers, what then will fuel investor interest? The answer to this question lies with the waste generators themselves. Private industry, because of tight fiscal constraints, has been much slower than the federal sector (which is beginning to open up) to commit its dollars to the cleanup of sites that have long since been identified or targeted for cleanup. These companies will only act when rules are in place that are consistently applied and promote lower cost treatment -- as we are beginning to see with the recent rules promulgated by the EPA favoring on-site treatment, and a growing movement toward the adoption of risk-based standards. Ultimately, as the regulatory enforcement process becomes consistent and companies are forced to comply with it, these same companies will demand from the marketplace less costly and more effective alternatives for dealing with their wastes in an effort to improve their bottom line.

Obviously, regulation is a powerful market driver, and it will force the emergence of waste management companies with the potential for significant growth and return to investors. But until there is greater regulatory clarity and consistent enforcement, investors face considerable difficulty in defining the risks, development costs, and time frames for emerging technologies to support informed investment decisions on these new technologies and emerging companies. Therefore, the better way to pursue investment in new or innovative environmental technologies is through established (as opposed to start-up) private companies with solid commercial histories and management teams skilled at adapting new technologies in the field -- companies that, with investors' capital, can serve as a "platform" for commercializing new technologies.

The financial marketplace will impose its own discipline on the process and, inevitably, will determine in large part the rate at which these technologies are commercially introduced. As Alfred Herrhausen, the late chairman of Deutsche Bank, noted, "There is not basic conflict between a market economy and environmental protection... efficient ecology is only possible in the first place with the help of market instruments that use the price mechanism."

These mechanisms, in tandem with powerful regulatory drivers, are moving this market toward lower-cost, innovative environmentally sound solutions.

This will lead waste generators to deal with their waste problems sooner rather than later and should provide exciting long-term opportunities for private investment. For corporations as well as investors, environmental protection in the '90s can, and should, be good business.

David C. Stoller is Chairman and Chief Executive Officer of Charterhouse Environmental Holdings, which was recently formed by the New York based investment firm Charterhouse Group International Inc. "Our goal," he says, "will be to identify, invest in, and help manage companies and projects that demonstrate viable solutions in the reduction, recycling, stabilization, and disposal of industrial wastes." He is a Director of American Disposal Services Inc., the first company acquired by Charterhouse Environmental. He continues to serve Of Counsel to Milbank, Tweed, Hadley & McCloy, where he has been an attorney since 1984.