According to new research by PwC (“The State of Climate Tech 2020“), venture capital and corporate investment into climate tech (broadly defined as technology-enabled solutions to climate change, and the transformation to net-zero emissions) grew at a faster rate than VC investment as a whole between 2013 - 2019. 3750% over only the last seven years and US$60 billion of early-stage capital, to be precise. PwC’s research shows that $16.3 billion was invested in this space in 2019 - back in 2013, that figure was at $418 million. Although the sector still only represents 6% of the VC market, VC investment into climate tech over the past seven years has grown three times faster than into the galvanizing area of AI and five times faster than the average rate across all industries. Key factors influencing this investment include capital efficiency to prove and scale solutions; and the potential for the solutions to provide cost-effective carbon reduction or removal. Clearly, this is a big deal.
Azeen Azhar, author of the Exponential View newsletter and co-author of the PwC report, said the numbers were a sign that the climate tech market is maturing - but still at a very early stage. There are still key gaps in the depth and nature of funding available to founders and tricky structural hurdles for them to navigate as they scale their businesses. Many climate tech startups are working in sectors with high barriers to entry like energy, heavy industry, and transport. To get a leg up, many turn to corporate venture capital (CVC): 30% of the climate tech deals in mobility and transport included a CVC firm; while in energy 32% of capital came from CVCs. Corporate investors include energy majors, global consumer goods companies, government-backed investment firms, and private equity players. This involvement from corporates will be key to the continued success of the climate tech industry - both in terms of their net-zero commitments driving demands for new solutions, and their investments into commercializing innovation. Celine Herweijer, global leader in Innovation and Sustainability at PwC UK, comments that CVCs bring not only financial means but commercial know-how and industry knowledge. This helps climate startups learn how to rapidly deploy and scale new innovations into the market. According to Herweijer, it won’t be just corporates piling into climate tech deals soon; there’s a huge opportunity for investors of all kinds. She adds: “Climate tech is a new frontier in venture investing for the 2020s.”
PwC’s report states that nearly half of all venture dollars ($60bn) went to US and Canadian climate tech startups (US$29bn); China is second at US$20bn. The European market attracted US$7bn. Mobility and transport solutions dominate US and China investment. Compared with the other regions, Europe is more invested in energy, particularly developing the core technologies for renewable energy generation and energy storage. This demonstrates the potential for regional specialist capabilities to develop in a second wave of development for the climate tech sector, following mobility and transport. Outside of the dominant US and China markets, Berlin, London, Labege (France) and Bengaluru (India) were amongst the top ten cities for climate tech startup investment, attracting US$1.3bn, mainly across energy, agriculture, and food and land use.
“The analysis shows the urgency of the opportunity, and gap to close, to support and scale innovative technologies and business models to address the climate crisis,” PwC’s Celine Herweijer further comments. New commitments from governments, countries, cities, businesses and investors to net-zero transition and rising consumer engagement are driving this investment. The COVID-19 pandemic is further reinforcing climate tech need and opportunity. It may have caused a short-term lull in VC market activity in 2020, however, long-term investment and market potential appear resilient. Just in the past year around 300 global companies have committed to achieving net-zero emissions by 2050. Many of these commitments are accompanied by substantial pledges to fund innovation. The increasing prominence of Environmental, Social and Corporate Governance (ESG), increasing government commitments to a ‘green recovery’, and continued rising consumer pressure to respond to the climate crisis is further cementing demand for climate tech. However, despite these significant and promising levels of growth, the PwC report points out that, with just ten years to reduce global greenhouse gas emissions by half and limit global warming to 1.5C, climate tech needs a rapid injection of capital, talent and public-private support to match it’s potential to build and accelerate faster, bolder innovation. The good news is that, whilst most people’s attention is focused on finding solutions to solving one crisis, all hope is not lost for fixing the other crisis we’re living through.
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