Climate Tech Investment more than Triples

Climate Tech Investment more than Triples
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Investment from venture capital and private equity is pouring into climate tech, reaching $87.5 billion over the second half of 2020 and the first half of 2021, according to PwC. An excess of $60 billion came in the first half of 2021 alone. This represents a 210% increase from the $28.4 billion invested in the 12 months prior.

Fully 14¢ of every dollar of venture capital (VC) investment now goes to climate tech. Where the investment falls short is in addressing the largest contributors to global emissions. Of 15 technology solutions analyzed, the top five, representing more than 80% of emissions reduction potential by 2050, received just 25% of the climate tech investment between 2013 and 1H21.

“The world has 10 years to halve global greenhouse emissions if we are to have hope of achieving net-zero by 2050. Innovation is critical to meeting the challenge and the good news is that climate tech investment is up significantly across the board. However, our research has found there is potential to better channel and incentivize investment in technology areas that have the greatest future emissions reduction potential. This raises the question of why these sectors are missing out - are investors missing a valuable opportunity or is there an incentive problem that needs the attention of policymakers?“ said Emma Cox, Global Climate Leader at PwC UK.

Climate tech encompasses technologies focused on reducing greenhouse gas (GHG) emissions. Following rapid growth between 2013 and 2018, climate tech investment plateaued in the 2018-2020 timeframe, tempered by macroeconomic trends and the global pandemic. However, investment rebounded sharply in 1H21 driven by a heightened focus on ESG in private markets, emerging regulations and standards, and thousands of companies committing to net-zero strategies.

The average climate tech deal size nearly quadrupled in 1H21 to $96 million, from $27 million one year prior. About 1,600 investors were active in 1H21, compared to fewer than 900 in 1H20 as the wider investment community becomes familiar with the opportunities in climate tech as an asset class. SPACs (special purpose acquisition companies) were tested to further stimulate climate tech’s growth and raised $25 billion in 1H21, accounting for more than a third of all funding.

Mobility and Transport continue to receive the lion’s share of climate tech funding as electric vehicles (EVs), micro-mobility and other innovative transit models attract investor attention. Mobility and Transport, Industry, Manufacturing, and Resource management (IM&R) and Financial Services saw the fastest growth year over year between 2H19 and 1H21, each more than 260%. The top five technologies representing over 80% of future emissions reduction potential include Solar Power, Wind Power, Food Waste Technology, Green Hydrogen Production, and Alternative Foods/Low GHG Proteins.

Investment is up in all the technology areas assessed, however, it is focussed on technology solutions accounting for 20% of emissions reduction potential. There is an opportunity to shift greater emphasis to areas and technologies with more emissions reduction potential. It is also notable that despite overall growth, the number of early VC, seed, and Series A investments in climate tech has remained largely stagnant since 2018. While this partly reflects the maturity of climate tech as an asset class, it also highlights the need to fund more start-ups, with the potential to become climate tech unicorns and gigacorns.

The United States leads in climate tech investing, attracting nearly 65% of VC investment, $56.6 billion from 2H20 to 1H21. China is estimated to have seen $9 billion in climate tech investment in the same period, while Europe totaled $18.3 billion, driven by a nearly 500% (494%) increase in Mobility and Transport in 2H20 and 1H21, compared to the prior 12 month period.