Climate change is real and there is a growing awareness among the population to try to mitigate any negative ramifications these changes will have. New, innovative solutions are constantly being introduced to offset the impact of everyday activities, and some are going to be able to help in more ways than others. As a whole, climate change is turning into big business and investors are taking notice. According to Modern Diplomacy, citing a study conducted by accounting giant PriceWaterhouseCoopers (PwC), investments being made into climate innovation far outpace those of venture capital (VC) market rate, now reaching five times the amount targeting the latter.
From 2013-2019, a total of $60 billion was injected into companies working on netzero emissions solutions. That first year, $418 million had been destined to climate tech, while $16.3 billion was contributed last year. Almost half of the total investment money went to companies and startups operating out of the U.S. and Canada, while $20 billion went to Chinese companies. The European market only captured $7 billion.
In terms of overall investments, VC only accounts for 6% of all money that is given to finance new projects. Environmental tech is grabbing a larger portion of that pie, primarily, due to the provability and scalability of the solutions presented, and their ability to effectively reduce carbon use, or to erase it completely. By way of comparison, the environmental tech investment segment is growing three times faster than the artificial intelligence (AI) segment.
Explains PwC U.K.’s Celine Herweijer, the company’s global leader of Innovation and Sustainability, “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. Climate tech is a new frontier in venture investing for the 2020s.”
She adds, “Some of the technologies and solutions critical to enabling this transformation are proven and need rapid commercialisation, which is why venture capital is key. It will not need trillions invested in startups to make a difference. But for the trickier technologies and markets it will need targeted support, including from governments, to make it through research and development, and the early stages beyond which capital increasingly is lining up.”
The study points out that climate innovation is focusing primarily on mobile and transport, heavy industry and greenhouse gas storage solutions. Following these, food, energy, agriculture and land use are among the more popular targets. Electronic bikes and scooters are seeing a lot of interest, with the compound annual growth rate of investment increasing around 151%. This has captured 63%, or $37.4 billion, of all climate innovation investment money distributed.
The investments aren’t just driven by a desire to see returns; they’re also being made as a result of a legitimate commitment to helping the environment, but more needs to be done. Asserts Herweijer, “Every commitment represents a demand signal—a new customer—in the market for a solution that helps them achieve net zero. More broadly, the increased profile 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 cementing demand for climate tech. Despite significant and promising levels of growth, with just ten years to reduce by half global greenhouse gas emissions to limit global warming to 1.5C [34.7F], climate tech needs a rapid injection of capital, talent and public-private support to match its potential to build and accelerate faster, bolder innovation.”
