Climate tech venture capital investment soars to record levels

Venture capital (VC) investment in climate tech grew five time faster than the average seen across the market as a whole between 2013 and 2019, according to fresh findings from PwC.

Research published this morning by the consultancy giant has revealed that throughout the seven year period, roughly $60bn of early stage capital was invested globally into start-ups geared at tackling the challenge of building a net zero emission economy.

While climate tech took a relatively small slice of the VC market in 2019, at six per cent, investment in green technologies is dramatically outpacing most other sectors, according to PwC. VC investment in clean technologies jumped from $418m in 2013 to $16.3bn in 2019, a growth rate three times the magnitude seen in Artificial Intelligence and five times the cross-sector average.

Mobility and transport were the areas that reaped the most investment during the six year period surveyed, followed by food, agriculture and land use, and the energy sector, the report reveals.

Celine Herweijer, global leader of PwC UK's innovation and sustainability business, touted climate tech as a "a new frontier in venture investing". An explosion of net zero pledges from companies in the past year - many of which include explicit commitments to ram[p up innovation spending - mean that the long-term prospects for climate tech investment remain strong despite a Covid-triggered "lull" in the wider VC market, she added.

"Every commitment represents a demand signal - a new customer - in the market for a solution that helps them achieve net zero," Herweijer said. "More broadly the increased profile of Environmental, Social, and Corporate Governance, increasing government commitments to a 'green recovery', and continued rising consumer pressure to respond to the climate crisis is cementing demand for climate tech."

An update this week from the UN-backed 'Race to Zero' campaign confirmed that the number of businesses, regional and city governments has more than doubled since the start of the year, despite the coronavirus pandemic. The business community alone has seen the number of public net zero pledges increase around three-fold to over 1,500 corporates globally.

However, Herweijer warned that much more investment in green technologies would be required to meet the demands of the net zero transition. "Despite significant and promising levels of growth, with just 10 years to reduce by half global greenhouse gas emissions to limit global warming to 1.5C, climate tech needs a rapid injection of capital, talent and public-private support to match its potential to build and accelerate faster, bolder innovation," she said.

While venture capital would be "key" to scaling solutions that are proven and require "rapid commercialisation", emerging technologies will need support from a broad spectrum of players, including governments and corporate venture capital, Herweijer argued.

"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," she said.

The report notes that the major factors influencing VC investment include capital efficiency to prove and scale solutions and the potential for the solutions to provide cost effective carbon reduction or removal. 

As such, calls are continung to grow for governments around the world to step up support for nascent sectors, such as green aviation, low carbon shipping, carbon capture and storage, hydrogen, and energy storage, where experts agree technology advances are still needed to put the world on track for net zero emissions.

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