Tech investment could be better targeted to cut emissions
While investment from venture capital and private equity is pouring into the climate tech sector, a new report suggests that not enough of it is targeting the reduction of greenhouse gasses. Projects with the largest potential to reduce emissions received less than one-quarter of the world’s climate tech investment, according to the study.
As the effects of climate change become more pronounced, the world’s largest businesses are struggling to build for economic growth without harming the planet with its carbon output. As well as looking to reduce their own output, this is seeing many businesses commit to carbon-offsetting. This process consists of a reduction in emissions of carbon dioxide or other greenhouse gases made in order to compensate for emissions made elsewhere. While paying to plant trees is the most common approach to offsetting, it can also include sponsoring solar and wind-power projects, or even capturing methane released from land-fill sites.
One example is ‘direct air capture’ technology. The technology looks to remove unavoidable and historic CO2 emissions from the atmosphere, before either recycling it, using it as a raw material, or completely removing it from the air by safely storing it underground. It is hoped such technology, and many other examples, can help halt global warming, by reducing the amount of potentially harmful CO2 in the Earth’s atmosphere.
As the importance of its scientific benefits have become more widely demonstrated, so has the business potential for climate tech. While climate tech investment plateaued from 2018 to 2020, tempered by macroeconomic trends and the global pandemic, investment rebounded sharply in the first half of 2021 driven by a heightened focus on ESG in private markets, emerging regulations and standards, and thousands of companies committing to net-zero strategies.
Analysis of investments in the market by PwC suggests that investment from venture capital and private equity in particular is pouring into climate tech, reaching $87.5 billion over the second half of 2020 and the first half of 2021, with in excess of $60 billion in the first half of 2021 alone. This represents a 210% increase from the $28.4bn invested in the 12 months prior, with 14¢ of every dollar of venture capital investment now going to climate tech.
However, according to the research, this investment is not as clearly targeted as is needed when it comes to focusing on reducing greenhouse gas (GHG) emissions. PwC analysed 15 technology solutions which had been part of the funding surge, and drew conclusions that the top third of projects in terms of emissions reduction potential received only around one-quarter of the investments going. Of 15 technology solutions analysed, the top five, representing more than 80% of emissions reduction potential by 2050, received just 25% of the climate tech investment across the total number of deals.
Emma Cox, Global Climate Leader, PwC UK, said, “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 incentivise 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 value opportunity or is there an incentive problem that needs the attention of policy makers?”
