The Four Key Barriers Facing Climate Companies - And A Solution

Clare Anderson
13th October 2020

As PwC’s September 2020 The State of Climate Tech 2020 and our recent blog report, the climate tech industry has experienced rapid investment growth over the past seven years (2013-2019), rising more than 3750% in this time. However, despite this impressive growth and a strong set of driving forces, the landscape displays different levels of maturity across different geographies and sectors. It is still far from the scale society needs to make a net-zero emissions economy before 2050 a reality. 

PwC’s report makes clear that economies and societies are also now facing a rapid decarbonization challenge whilst trying to build back better from COVID-19. There is therefore an urgent need for faster and bolder innovation in climate tech. Achieving this step-change will obviously require significant additional VC funding but in order for climate tech to reach its full potential, the full range of the market’s key challenges, beyond funding, need to be proactively identified and overcome. The report identifies the following fundamental barriers that still remain:

TECHNOLOGY

  • Uncertainty in R&D timelines
    • Unpredictable timelines for product development (despite novel and high-impact solutions to the net-zero transition) can dissuade capital - and therefore company formation. Investors are wary of technologies that are not yet proven to work cost-effectively, or at all.
  • No tried and tested standard operating procedures to reach product/market fit
    • Being in a good market with a product that can satisfy that market is key to startup success. Without established approaches providing roadmaps to success, climate tech companies find themselves needing to invent the playbook at the same time as executing it.

FINANCE

  • Lack of access to specific types of capital required
    • Climate tech startups may face three different classes of capital challenge that differ from a traditional venture capital-backed startup. The question is not merely about the amount of capital required at each point, but the participatory structure of that capital that works for climate tech:
      • R&D may take a long time and thus requires patient capital
      • Proofs-of-concept or pilot programmes may require significant amounts of capital, meaning large investments may be required before products have been proven
      • Large scale deployments may have long pay-back periods, running into decades. These might typically have involved project finance rather than venture capital structures.

POLICY & PROCESS

  • Fragmented regulatory markets and scaling complexity
    • Markets are often fragmented at a regulatory level and also differ across geographies i.e. city, state, and national levels. Delivering a proof-of-concept at scale, therefore, can be capital intensive. Even signing a first pilot agreement with an incumbent can be hazardous. 
  • Regulation can be overly complex, stifling innovation
    • Regulation of key industries can help reduce information asymmetry, protect consumers, and increase market confidence. Overly stringent regulation can also hinder innovation.
  • Lack of regulatory incentives for climate tech
    • The climate tech market lacks a globally consistent and meaningful carbon price to drive decarbonization. The current reality is a carbon price set on narrow economic segments, in specific regions, at different levels (including in some places prices too low to provoke change.) Carbon pricing is particularly important for capital-intensive solutions that are key to many of the harder to abate sectors (e.g. shipping, aviation, carbon capture, and storage.)

PEOPLE

  • Availability of talent and skills
    • Founder quality and the talent of the teams they can attract are critical for these firms to succeed. In established startup sectors, such as software, Internet or biotech, the mature ecosystem attracts, grows, and supplies this talent.
    • With fewer successes, the climate tech sector has a smaller pool to draw from. The sector is also complex in needing deep technical expertise from different domains, as well as commercial leaders who know how to get to market. 
    • Whether it is singular individuals or the teams around them that matter, talent is critical. This includes talent that can help startups interact with large and significant customers, who may not operate at the same pace as a startup.

The PwC report gives recommendations on how to address the barriers climate companies are facing. You may also like to consider connecting with the smartest STEM graduates in developing countries as a means of addressing the finance and talent challenges specifically. The cost arbitrage will help you scale faster and more efficiently and enable you to tap into a bigger and more diverse global talent pool. Forbes, McKinsey and Harvard Business School all maintain that workforce diversity is a key driver of internal innovation and business growth. Working with a remote team in a developing country will help you manage your risks and associated processes more effectively and hit the triple bottom line of profit, people, and the planet with ease. 

If you’re interested in tapping into the best global talent with remote teams to help you scale quickly and cost-effectively, download our eBook, ‘30 Hints & Tips To Get The Most Out Of Your Remote Team’. It will ensure you're informed and have the right questions to ask when considering the next step.

 

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