Climate tech sector outperforms the overall venture capital market
According to a report by PwC, investment and grants in climate tech startups have fallen just over 40% over the last 12 months, but that plunge is less precipitous than the broader venture capital industry globally. The report on the state of climate tech described investors as narrowing their focus to areas that need it most, such as heavy industries; climate tech has a “growing share of a muted market” hobbled by global economic and political conditions.
“The need for climate technology continues to rise, but equity investment in start-ups has declined for a second year amid tough conditions in private markets,” the report said. Total venture and private equity investment fell 50.2% to $638 billion in the 12 months to September from the same period a year earlier, PwC said. Investment in climate tech is about 10% of that total.
The world is far behind the level of decarbonization needed to hold the rise in global temperatures to 1.5 degrees Celsius, PwC said. Sectors that need the technology the most, including agriculture and the built environment which includes commercial and residential buildings, are seeing relatively small and decreasing interest from investors.
Carbon capture, green hydrogen and alternative foods are the hot spots for climate tech
Areas with high potential for cutting emissions that are getting more capital include carbon capture, “green” hydrogen made from water, typically using renewable electricity, and alternative foods. These sectors have seen increased funding and innovation in recent years, as they offer solutions for some of the most challenging sources of greenhouse gas emissions.
Carbon capture is a process that removes carbon dioxide from the atmosphere or from industrial sources and stores it underground or uses it for other purposes. Green hydrogen is a clean fuel that can be used for transportation, heating, power generation and industrial processes. Alternative foods are products that mimic or replace animal-based foods, such as plant-based meat, dairy and eggs, or cultured meat grown from animal cells.
According to PwC, carbon capture received $3.5 billion in investment and grants in the 12 months to September, up 58% from the previous year. Green hydrogen received $2.5 billion, up 36%. Alternative foods received $1.8 billion, up 18%.
Climate tech startups face challenges and opportunities in a changing world
The report also highlighted some of the challenges and opportunities that climate tech startups face in a changing world. One of the challenges is the regulatory uncertainty and policy inconsistency across different regions and countries, which can affect the demand and viability of climate tech solutions. Another challenge is the scalability and profitability of climate tech ventures, which often require high capital expenditure, long development cycles and complex value chains.
On the other hand, some of the opportunities include the growing consumer awareness and demand for sustainable products and services, which can create new markets and competitive advantages for climate tech startups. Another opportunity is the increasing collaboration and partnership among different stakeholders, such as corporates, governments, NGOs and academia, which can provide access to resources, expertise and networks for climate tech entrepreneurs.
The report concluded that climate tech is a “critical enabler” for achieving net-zero emissions by 2050, and that investors have a “key role” to play in supporting innovation and scaling up solutions.
